DAVID P. BRENNAN – TO CBOT, COOPERATION IS ONLY OPTION IN FUTURES

New Chicago Board of Trade chairman David P. Brennan acknowledges that his wish for closer cooperation among the city’s big futures exchanges is a stale, 25-year-old topic — an old idea that has gone nowhere because of institutional rivalries.

But maybe now is different, he insists. “Why not?” he asks. “I think the timing might be right here for a lot of things.”

The timing — and the instinct for survival.

Now that his members have rejected an alliance with Eurex, an all-electronic German-Swiss exchange, Mr. Brennan is turning to local competitors in hopes of building an electronic network. The idea: Provide one-stop computerized shopping for customers and protect the exchanges from inroads by foreigners.

Mr. Brennan, a soybean trader elected in December, met last week with William J. Brodsky, his counterpart at the Chicago Board Options Exchange, and says he wants an appointment soon with Chicago Mercantile Exchange Chairman M. Scott Gordon.

Says Mr. Gordon: “From our standpoint, we have already said we are looking for alliance partners in both technology and product, and we’re going to continue to do that.”

Previous talks with the Merc foundered after the board of trade turned to Eurex. (The Merc has its own deal with the French exchange commonly known as Matif.)

Technology staffers at the board of trade and CBOE were given a tight, one-week deadline to report on the feasibility of forming a “common pipe” that would allow customers to punch up on a single computer screen products offered by more than one exchange.

“We’re at the what-if stage,” cautions Mr. Brodsky.

Mr. Brennan’s approach is risky: Eurex would have provided wider, cross-border distribution of the exchange’s products amid a globalizing industry.

Notes Patrick H. Arbor, the pro-Eurex board of trade chairman defeated by Mr. Brennan: “The CBOE only brings a technology alliance. It doesn’t bring a product alliance.” And the idea of a common pipe, he adds, “just reinforces the board of trade as a parochial North American exchange.”

Indeed, Mr. Brennan himself won’t officially bury the Eurex deal, which he has faulted for its costs and a shared “trading engine.” He favors network links, with his exchange retaining control of its own “back-end” trading functions. But Eurex leaders declined to renegotiate terms.

“I wouldn’t rule out speaking to those guys again,” says Mr. Brennan. “Look, we’re all businessmen.”

For now, Mr. Brennan’s gamble is based on a risky geographical expansion of the board of trade’s Project A electronic system, whose biggest volume (in U.S. Treasury products) occurs in the 110 minutes before the pits open at 7: 20 a.m.

A global push will suck up money, too.

“No one has the foggiest idea what it’s going to cost the board of trade to make Project A a viable worldwide system,” says a top official with the exchange.

And many customers — who ultimately will call the tune — think “side-by-side” simultaneous electronic and pit-based systems are only a temporary expedient.

“It artificially creates two markets,” says Marc Breillout, chairman of Fimat, a futures subsidiary of Paris-based Societe Generale. “The way you trade on the floor is very different than the way you trade on the screens.”

Mr. Brennan, however, could prove more receptive to technologically driven change than he’s been portrayed.

In the sense that it took a conservative president to open this country’s diplomatic doors to China, Mr. Brennan’s reputation as an insular grain trader could inoculate him against charges that he is abandoning fellow “locals” who control the exchange and engage in the time-honored open-outcry system.

“Don’t sell these members short,” he says.”They’re a bright group.”

Mr. Brennan’s age — 41 — also is cited by those who feel someone with 20 or 25 years left in his career will necessarily take a long-term view.

Mr. Breillout doesn’t envy exchange leaders. “The choice is very difficult,” he allows. “That’s why these issues aren’t addressed very quickly.”

Promises Mr. Brennan: “Our electronic system will be as good as anybody’s, if not better. “If (trading) jumps to computers, it’s going to be our computers.”

Crain News Service