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Merc loses futures to ICE
Russell move may affect CBOT battle
By Robert Manor
Tribune staff reporter
Published June 19, 2007
The IntercontinentalExchange Inc., which is attempting a merger with the Chicago Board of Trade, said Monday it had won the exclusive right to trade a well-known group of equity index futures previously traded mainly on the Chicago Mercantile Exchange, a move that could weaken the Merc's competing merger bid for CBOT.
The ICE announcement involves the Russell Investment Group's two popular stock indexes of large and smaller capitalization stocks. Such index futures products have grown increasingly popular in recent years.
Patrick O'Shaughnessy, an equity analyst with Morningstar, said ICE's win of the contracts will serve two purposes. One is to diversify its offerings, which now are mainly energy and commodities such as sugar and cocoa, to include the increasingly fast-growing universe of financial futures.
It is also to strengthen ICE's bid to merge with the CBOT, a merger also sought by the Merc. "The ICE platform will offer investors worldwide exclusive access to Russell's unparalleled group of equity indexes," said Jeffrey Sprecher, the chief executive of ICE.
"They want people to see that they are here to stay and that they are a big player," O'Shaughnessy said. "It certainly brings ICE some credibility."
Russell equity indexes have been trading with the Merc since 1992, the company said, although some Russell products trade on the New York Board of Trade, which was recently acquired by ICE.
A spokesman for the Merc played down the loss of the Russell indexes. "Russell products make up only 1.5 percent of the total CME equity standard products, which means out of the 6 million contracts we do each day it's below half a percent of total volume," said Allan Schoenberg, director of corporate communications for the Merc.
Even backers of the Merc's bid for CBOT said the loss of the Russell indexes will have some impact on CBOT shareholders, who are to vote on the merger issue July 9.
"It will have a lot of shock value," to the Merc, said Alan Palmer, an independent trader at the CBOT. But he said that, in the long run, Merc's offer for CBOT is still more attractive than that of ICE.
The Russell Investment Group has developed a number of stock indexes intended to measure how different types of stocks are performing.
Russell licenses the use of the name for the indexes.
Kelly Haughton, strategic director for Tacoma, Wash.-based-Russell, could not give an exact timetable for when trading in the index futures would migrate from the Merc to ICE.But Haughton said ICE could win the right to trade other Russell equity indexes.