February 25, 2007
Ladies and Gentleman:I have been a member of the CBOT for more than 35 years, and a founding member of the CBOE. I feel very strongly about the significance of my (and my associates) contributions to the birth and success of the CBOE.
At the inception of the CBOE, I was employed by the firm of H.Hentz Company. One of the senior partners there was Fred Ulman who was the chairman of the CBOT. Another partner was Leo Pomerantz who became the first chairman of the CBOE. Further, the CBOT hired Booz Alan and Hamilton to draw up a plan to create a central market place which would provide transparency and uniformity for the OTC option market. It was also my understanding that the CBOT had a license to trade stock and (with the blessing of the SEC) become an exchange (CBOE).
The members of the CBOT enthusiastically supported the new exchange with its members underwriting the risk inherent in this marketplace. In addition; the CBOT supported it financially with staff, office and floor space. Being a member of the CBOT, like many other members, I felt it was our key responsibility to make the CBOE the best option exchange possible. Our members spent countless hours coordinating significant activities between the two exchanges and that time allocation could frequently not be justified financially. Our key premise for this behavior was that, for the CBOE to be successful, it was critical for market makers to take on the required risk, and add liquidity.
On the first day of trading, as would be expected, I exercised my CBOT right to trade at the CBOE. I feel that my contributions (and those of my contemporaries) have had a material impact on creating the success the CBOE enjoys today. In fact, it would not exist today if not for the contributions of funds, expertise, staff and space from the CBOT. More specifically, The Board of Trade members were the original market makers; and the Board of Trade clearing firms (with their background in commodity futures trading) underwrote the marketplace risk.
With this in mind, I would hope that the SEC would rule against the CBOE in their attempt to void my, and my associates, Exercise Rights. However, the most important reason for ruling against the CBOE is the obvious one: What's best for the market place? Excluding potentially 1400 plus market makers, from a given market, is just not good business. By comparison, a large city would not capriciously eliminate 1400 firemen,1400 policemen or 1400 doctors; for these professionals are essential to civic welfare. Just as firemen combat conflagration and related disasters, policemen insure public safety and physicians service community health; the highly skilled professional market maker is essential to this country's financial stability and well being.
Neil Esterman
CBOT member
CBOE founding member