Dow Jones Covers "Zero-Sum Game"

12/2/10 UPDATE: The article was reprinted today on the Wall Street Journal's web site, here.

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I love this article about Zero-Sum Game and the various reactions to it, but alas, it can only be accessed with a username/password for Dow Jones Newswires, so I've included it in its entirety below.

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04 Nov 2010 11:41 EDT
DJ DERIVATIVES DIARY: Revisiting Exchange Deal That Remade Chicago

By Jacob Bunge

Of DOW JONES NEWSWIRES

CHICAGO (Dow Jones)--The Bernard Dan who led the Chicago Board Of Trade from 2002 until 2007 is famed as an extraordinarily hard worker largely responsible for revitalizing the oldest exchange in the city that launched futures trading, and prided himself on being first to work in the morning. Not a terribly sentimental type, perhaps.

But after reading a newly released insider account of the CBOT's final year -- in which the exchange was wooed, fought for and ultimately bought for $11.3 billion by its crosstown rival, the Chicago Mercantile Exchange -- Dan is wistful.

"My time running the CBOT was probably the best professional experience I ever had," said Dan, who departed after the July 2007 formation of CME Group Inc. (CME) and a year later signed on for an 17-month hitch turning around the broker MF Global Holdings (MF).

"Reading the book, I realized how fortunate I was to have that role," he said in an interview.

The book is "Zero-Sum Game," a deal story in the spirit of Bryan Burrough and John Helyar's "Barbarians At the Gate," penned by Erika S. Olson, who landed a managing director job at the CBOT just five weeks before the late-2006 merger approach from CME that would redraw the map of U.S. derivatives trading. And put a lot of nice yachts in Lake Michigan.

Before inking the deal giving the combined entity jurisdiction over some 85% of domestic futures markets, Olson recounts how the exchanges were blindsided by a surprise bid from upstart IntercontinentalExchange Inc. (ICE), jousted with surly members seeking a better deal and ultimately sweetened the offer to appease a key Australian shareholder and boating enthusiast--who nearly scuttled the transaction at the 11th hour.

"I knew this was bound to be a crazy story because it was these century-old rivals trying to merge, and then ICE came in and there were all these twists and turns," said Olson in an interview.

The book arrives four years after CME made its initial approach to CBOT, and just in time for the futures industry's annual Chicago meeting, known as "Expo."

Olson said she planned to attend, despite some misgivings. "I don't want to get strangled," she said.

CME Chief Executive Officer Craig Donohue, a key player in "Zero-Sum Game," hasn't read the book. He said he is still working his way through "Too Big To Fail" by Andrew Ross Sorkin. Other members of CME's senior management also professed not to have seen it, though a copy with highlighted passages was reportedly spotted in circulation at CME's Wacker Drive headquarters.

For Jeff Sprecher, the CEO of IntercontinentalExchange and erstwhile CBOT suitor, "Zero-Sum Game" reopened some old wounds. At the end of the book, Sprecher reiterates his view that ICE's bid represented a better offer for CBOT shareholders and would have made the U.S. futures business more competitive.

"Inside the Board of Trade, it seemed like they never really took our bid seriously," Sprecher said in an interview. Though Olson noted the more dramatic moments around ICE's involvement -- like announcing its bid by way of documents slipped under the hotel doors of sleeping attendees at a March 2007 Futures Industry Association gathering -- Sprecher said ICE at the time could have warranted its own book.

"Our company was operating at its finest," he said, with the CBOT bid following a series of successful acquisitions that expanded ICE's market portfolio.

Dan, who left MF Global in March and is now mulling his next move, said reading the book was a "walk down memory lane." Next year will see him return to financial services -- in what capacity, he isn't yet saying--but "Zero-Sum Game" sharpened his desire.

"It made me think of all those people and the success that the Board of Trade experienced in the seven years I was there," Dan said. "It was rewarding for me to read it."

-By Jacob Bunge, Dow Jones Newswires