Sold My Last Membership

August 30, 2014 4:22 AM

Below is a Tumblr post by my pal Jeff Carter


I have been a member of the CME in one capacity or another since May of 1988.  I was on the board.  I was one of the guys that turned the place around and we IPO’ed in 2002.  

I don’t really trade anymore and don’t need the seat.  I had it leased out for monthly income, and lease values plummeted.  The value of the seat went higher, and then dropped from $300k where I bought it to a low of $160k in 2012.  At the beginning of this year, they were just over $200k, and that is when I decided to scratch it.  I offered at $300k and waited.

The Federal Reserve hasn’t been kind to traders.  No volatility means they can’t make money and that has depressed the value of seats.  Additionally, CME management has actively worked to depress seat values.  This year, they had a ballot initiative on their proxy that I lead the fight against, and won.  

A number of years ago, I presented some folks at CME a plan to buy out the seats with common shares.  I showed how the corresponding change in fees would more than pay for the dilution in 3-5 years.  CME management wasn’t interested.

Interestingly, they aren’t interested in a lot of innovation at CME.  Just preserving their vertical silo.  Their stock price since 2007 reflects that.  A bloated 38 member board that is now a tad under 30 people-remember they are a publicly traded corporation!  

In 2011, I presented the idea of a corporate VC fund at CME.  It’s now 2014, and they are getting one off the ground.  That’s the speed at which they work these days.  The board is indicative of the fleet footedness of the company.  CME is centrally planned and a hierarchy.

Some old members think memberships are undervalued.  They might be, but the market is telling you something different.  In the last banking crisis, memberships fell out of bed, along with the CME stock price.  What happens when European banks default? Because it’s going to happen, just a question of time.

I feel a little naked without a membership.  Memberships become a part of you.  But, I am glad I don’t have it anymore.  I don’t care if they trade   $1M, or $0.  With the risk/reward, and the dedicated headwinds against them, I’d rather risk the $300k in a startup than an organization that doesn’t understand the megatrends that are remaking every business in the world. 

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