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A reprint of the article on http://www.futuresource.com .
CSE seats become a hot commodity
by DAVID ROEDER, BUSINESS REPORTER
February 18, 1999
There's a new kind of bull market
at the Chicago Stock Exchange and, if history is a guide, it
might serve as
a warning for investors.
The value of a membership at the
exchange, now the busiest outside of New York, has almost
tripled since
late last year. Within the last
week, three seats at the exchange have sold for a record
$135,000.
At the end of 1998, the
memberships were trading at about $50,000. Exchange
officials and brokers active
here attributed the increase to
huge growth in the CSE's business.
The CSE is faring better than the
other exchanges in town, which represent the futures and
options side of
the business. Seat prices at the
Chicago Board of Trade, Chicago Mercantile Exchange and the
Chicago
Board Options Exchange are just
starting to shake off a slump that hit in early 1998.
A membership affords the right to
directly trade an exchange's products. In the CSE's case,
that covers
more than 4,000 stocks available
at the CSE, more than any other exchange carries. Many
members are
firms that specialize in a
particular group of stocks, and they need additional seats
to keep up with orders,
experts said.
"We outgrew the industry 3-to-1 in
the industry's best year of all time, 1998," said Robert
Forney, the
exchange's president. He said the
CSE has worked aggressively to attract smaller orders by
cutting costs
and automating trades.
But will the increase in seat
prices follow a historical pattern? Only twice has the value
of a CSE
membership exceeded $100,000. Both
occurrences came weeks before the two worst crashes in stock
market history--in the Octobers of
1929 and 1987.
"We've noticed that, too,
coincidentally," Forney said. He said the latest example is
no harbinger of another
crash, but "just the free market
at work."
Many in the industry regard the
CSE as the most technologically advanced exchange and one
with a savvy
business plan. Priorities include
grabbing a greater share of orders that originate from the
Internet and
trading more stocks listed on the
computerized Nasdaq market.
"The specialist firms here have
gone after niches in the business that New York has
ignored," said Carey
Austin, chief operating officer of
Melvin Securities Corp. in Chicago. "In New York, they don't
care about the
100-share order. They just want
the 100,000-share order."
For 1998, trading activity at the
CSE increased 63 percent. For 1999, business is exceeding
last year's
pace by 72 percent.
The buyers of the $135,000 seats
were Chicago Securities Group Ltd. and Sydan & Co., both
existing
members of the exchange. Neither
firm could be reached for comment.
Other stock exchanges also have
seen a rally in seat prices. The American Stock Exchange
said Tuesday a
seat sold for a record $660,000,
the same day the New York Stock Exchange reported a sale for
$2 million,
63 percent higher than the
previous transaction.
In Chicago's derivative markets,
huge trading volumes caused seat prices to spiral upward in
1997, but
some memberships lost about 50
percent of their value by mid-1998.
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