Bennett Corn has overseen extensive renovations of facilities, contracts and operations during his four years at the helm of the Winnipeg Commodity Exchange.
Next month he will find out the fate of his most significant renovation effort.
The exchange’s board of governors has already been convinced that the WCE should change from a membership-owned, not-for-profit organization to a shareholder-owned, for-profit corporation.
Now it’s up to the members to vote on the proposal. They have until Feb. 20 to return their ballots.
From positive reaction received so far, Corn said he’s confident an “overwhelming majority” of members will vote in favor of demutualizing the exchange.
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He said the exchange has been looking at how it can restructure itself for more than a year. It’s something all exchanges have been looking at.
“We’re not one of the first.”
The Toronto and Montreal stock exchanges and the Chicago Mercantile Exchange have already switched.
The Chicago Board of Trade, the largest exchange for agricultural commodity futures, is in the process of demutualizing, Corn said.
Farmers who watch the WCE for price trends in canola, flax and feed grains won’t notice a difference in how a demutualized exchange works because the market will continue to operate the same way, Corn said.
However, the exchange’s governance and structure must change if it is to compete with emerging price discovery methods made possible by the internet and communications technology, he added.
“No one’s got a monopoly on these markets anymore.”
Internet-based business-to-business markets now mimic futures exchanges. New players are offering similar or competing methods of price discovery, Corn said.
“They’re able to make strategic decisions quicker and they have a lot more flexibility in how they’re able to run and guide their exchanges.”
He said the exchange’s current structure makes it hard to attract capital or form alliances.
Organizations that apply for membership can buy a seat on the exchange if they meet its standards. The seat gives them the right to trade the exchange’s contracts.
Members elect a board of governors, representing various segments of the trade.
When the exchange wants to make a change, it forms committees that study the issue, then goes to members to seek broad consensus.
Under the proposed new structure, the exchange’s management team will be accountable to the board of directors, which in turn will be accountable to shareholders.
“It gets you more into what is a more normal corporate structure.”
To get capital, the WCE now has to canvass its members or borrow from lenders. This makes it hard to launch new types of contracts, such as softwood lumber, livestock and natural gas futures.
Members who primarily are in the grain handling business may not be interested in trading new types of contracts, and thus probably won’t want to pay for their development.
“The more we can diversify, the more we can get other sources of capital, the more the grain industry
doesn’t have to fund 100 cents of the dollar of the things that go on here.”
If the proposed change is approved, the exchange would at first continue to be run by the same organizations that are now involved. But as new ventures are launched, new faces from sectors other than agriculture could become involved, Corn said.
The new structure will make it easier for the WCE holding company to form an alliance with a technology provider or another exchange.
