The Chicago Mercantile Exchange and the Chicago Board of Trade are considering some changes in trading procedures that could clear the way for a merger of the rival futures exchanges.
A joint strategic committee of the two exchanges, formed in response to concerns about cost that have been raised by the futures arms of banks and big securities firms, voted last month at its first meeting to make the merger a long-term goal. The committee next meets March 26, and it hopes to produce a written report in early July.
"The overall goal is to see if we can merge whatever functions and facilities as makes sense," said Leo Melamed, former chairman of the Mercantile exchange and currently chairman of Sakura Dellsher, the futures merchant of Sakura Bank. "Right now it is very, very early in the process."
The committee has focused on clearing, technology, marketing, regulation, electronic trading, market data information, and member opportunity.
The first step is to find the "no-brainer" changes that can immediately be implemented to save members money, said Merton Miller, the Nobel prize- winning University of Chicago economist who heads the committee.
Common banking is one such suggestion.
Currently, a futures merchant must keep separate bank accounts for its operations at both exchanges. Although traders can transfer a positive balance in one account to offset a deficit in the other, the process could be simpler and less expensive if members could have one common account for transactions at either exchange.
"It wouldn't require either exchange to change anything they are currently doing," Mr. Miller said.
Another proposal is to replace the separate computer systems developed by the exchanges for after-hours trading. Through a common trading system, Mr. Miller said the industry could reduce the technology costs of member firms and make exchanges more accessible.
The underlying reason for the historic meeting of the two rivals is to address future competitiveness of the industry.
"We have got to preserve the competitiveness of this industry," said Mr. Miller, "This is not just about a merger. It's a lot of steps leading up to and including a merger."
Ultimately, the industry is facing the same kind of competitive pressures the commercial banking industry and financial services companies are enduring, said Richard Sandor, chairman and chief executive of Centre Financial Products in New York and a director of the Mercantile Exchange. To remain competitive, the industry is considering consolidation for the benefits of economies of scale.
But the industry must still overcome the regulatory burden posed by its chief regulator, the Commodity Futures Trading Commission, said Mr. Miller. Through cooperation, he said the industry can overcome these obstacles.
"We have to do everything with that 50-pound bag of bricks on our back," he said of the regulator. "We should get together and pound on these guys a little more."
Mr. Sandor said he thinks changes could come follow swiftly.
"Everybody is going in with an open mind," he said. "I think the members of the committee are anxious to do something."
But Mr. Miller warned that overcoming the differences between the two exchanges could take time. He said he is hoping the committee's work will create the foundation for even more cooperation in the future.
"A merger is obviously a very difficult problem, and you can't expect to do it in 120 days," said Mr. Miller. "What we're hoping for is that after 120 days people say to themselves, 'You know, this is feasible.'"
