Navy Pier
Chicago, Illinois
June 21, 2002

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Before his death, our dear friend, Nobel Laureate, Merton Miller, confided that his greatest regret was not being present on the floor of the Merc the day financial futures were born in May of 1972. He missed that momentous occasion because he was out of town. For that reason, he said, he made certain to be present for the birth of Globex. Indeed, I stood arm in arm with Merton on the floor of the Merc on the evening of June 25th, 1992, and toasted the dawn of the electronic era, as the first of 1,893 IMM financial contracts became executed via an electronic venue for the first time.

Time has justified Merton Miller’s deep intuition and understanding about the magnitude of those two events. Ten years after the birth of financial futures, he called them the most important innovation in business of the prior two decades. Where he with us today, he would no doubt similarly proclaim that the birth of Globex forever changed the nature of futures trade. Our recent 1 million Globex transaction day certainly validates his reason for wanting to be present at its birth.

To reiterate what is clearly the understatement of the century, it was a difficult birth. To begin with, its period of gestation was an impressive five years. Why the gestation period of the largest mammal on this planet, the Asiatic elephant, is only twenty months. And it only took Orville and Wilbur Wright four years to introduce us to the friendly skies. Then again, the skeptics who derided the Wright Brothers antics at Kitty Hawk, had nothing on the participants of the futures industry who considered the Globex idea nothing short of impossible at best or suicidal at worst. The controversy surrounding its conception, the planned parenthood discussions between the CME and Reuters, the screams of the pro-lifers (read, open-outcriers), the deafening silence of the pro-choicers (read, almost no one), were enough to give the likes of William Shakespeare enough material for three comedies and as many tragedies.

Indeed, let no one here tell you that in 1986, when the CME Strategic Planning Committee which I had the privilege to chair, concluded its deliberations with a report to the board that the CME must be the first to undertake the creation of an electronic transaction system, that there was any thunderous applause from any quarter in the futures industry. Indeed, the very same FCMs that today are its staunchest supporters dragged their feet and privately, sometimes openly, opposed the idea. Why, it would serve to reduce their commission flow, was the usual fear. Would it not impair their ability to schmooz with their customer was a common lament.

It is important to record that the CME board had recognized the need to address globalization and the competitive threats it represented. Our markets were without a patent. Anyone, in any part of the world, could copy their design. A few years back, to combat the efforts by the LIFFE to take our Eurodollars, we found an inventive way to combat the attack. We created the Mutual Offset System with Singapore. It worked like magic and Liffe soon capitulated. But it had taken us three years to institute Mutual Offset and it was doubtful that we could pull it off again. Instead, a global solution was needed. Our Strategic Planning Committee thus had its mission. In less than a year of deliberations, we had the answer.

Let me record those brave members of Strategic Planning who served with me and gave birth to Globex. Brian Monieson, John Geldermann, Philip Glass, Scott Gordon, Richard Kapsch, Larry Leonard, Barry Lind, Lawrence Rosenberg, Louis Schwartz, Steven Wollack, Robert Zellner, and, the CME chairman, Jack Sandner who was an Ex Officio member.

Here is what we said to the CME board:

"GLOBALIZATION is upon us. No longer are the markets of New York, London, Tokyo or the many other major population arenas separate centers of finance. Technology has forced a single worldwide market.

Today, news is distributed instantaneously across all time zones. Everyone has access to all informational flows and the capacity to use the information to initiate market positions. One need no longer wait for local markets to open in order to act.

Globalization demands a new trading system, one that is responsive to the 24 hour trading day."

Prior to the Globex announcement, the suggestion of electronic trade, known simply as the "black box," was considered the equivalent of the Dark Side. Anyone who seriously proposed such a concept would summarily become Darth Vader of the futures world. Indeed, more than once I received little unmarked packages with ticking noises inside—remember this was long before Anthrax was the missive of choice. Anonymous veiled death threats in my mail were also not uncommon. In fact, the CME had to provide me with special security. No one, but no one, thought that such a dastardly idea as electronic trade would emanate from the leaders of the Merc. Indeed, on the eve of our announcement, a prominent financial reporter of a major Chicago Daily confidently predicted that the Merc would follow the CBOT with after-hours trading pits. Lo and behold, the Merc’s board of directors, most of them beholden to open outcry, voted unanimously in its favor. Talk about principle over personal interest.

Indeed, contrary to everyone’s prediction the Merc would not attempt to step back into time with evening pit sessions as did our neighbors at the CBOT. That solution we knew was an act in futility. The Merc embraced reality and the CBOT was stunned. It was the death-knell to futures markets they and many others proclaimed. Still, to the CBOT’s credit, a year later they made a full turn-around. If your competitor has the H-bomb, they said, then we must have one as well.

The secrecy surrounding our decision was second only to that of the Manhattan Project. A much anticipated members’ meeting was scheduled on the Merc’s upper trading floor. This was before that floor was remodeled for trading. One thousand two hundred and forty members came to the meeting, the highest attendance in our history. Reuters sent their select vice-presidents, Andre Villeneuve and John Hall to explain the deal. Jack and I had the honors of convincing our open outcry members that they had to leave the comfort of past attitudes. Electronic trade, we promised, would protect their future.

Lo and behold, to the world’s complete surprise and to the everlasting credit of the Merc membership, a month later, in September of 1987, some 88 percent of its members voted in a referendum in favor of proceeding with Globex. Talk about overcoming conflict of interest. Talk about responsibility. Talk about rising to the occasion. In the final analysis, the CME members did what they always did, embraced innovation. I have said this before and I say it again, our members, now shareholders, were the most educated, far-sighted, members of any comparable institution. They understood that if the destiny of futures markets was to be electronic, than it was imperative that the Merc own the franchise.

So here we are, ten years later and a million Globex transaction day a fact, and Merton Miller’s reason for wanting to be present at its birth has been fully validated. I salute the members of the Chicago Mercantile Exchange.

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