April 26th marks the 40th anniversary of the Chicago Board Options Exchange. While that makes it a mere youngster among Chicago exchanges, it is the pioneer that kicked off the equity options exchange industry in the United States in 1973 that is now global.

CBOE is also celebrating a few other notable birthdays this year as well – 30 years for the S&P 500 and S&P 100 or OEX, and 20 years of the CBOE Volatility Index, or VIX, which became a tradable futures product in 2004. Pretty nice round numbers for an exchange that ended 1973 with about 1.1 MILLION contracts traded and concluded last year with 1.1 BILLION.

With these key dates all coming together, John Lothian Productions, our budding commercial video division of John J. Lothian & Co, was hired by CBOE to tell the exchange’s story. So we embarked on a six-month video project, documenting the exchange’s creation, launch and growth from interviews with 10 executives and traders who spanned more than four decades at the exchange. We looked through hundreds of pictures the CBOE archives, video footage and charts. The video, titled CBOE 40, lets them tell the story of how the exchange went from an idea to the largest options market in the world.

We gave the video the look and feel of a commemorative magazine and designed the video to work in tandem with a traditional print layout. We took old photos of the first board of directors and through the magic our own Patrick Lothian’s video editing, turned them into 3D-esque images. And while those are cool visuals, the interviewees really tell the story, along with Jon Najarian (AKA Dr. J) as narrator.

We were fortunate to speak with some of the founders and executives who helped create the exchange under the Chicago Board of Trade’s stewardship. Joe Sullivan, the first president of the exchange and really the founder, flew from his home in Tennessee to Chicago to speak with us.

The soft-spoken Sullivan, who rightfully has the options industry’s highest award in his name, shared wonderful moments in the planning and early days of the exchange. There was his conversation with an SEC official in 1969 who told him that the agency had virtually no interest in approving an options exchange and said, “You shouldn’t waste a nickel on it.”

There was another battle for years over the SEC’s approval of put options in 1977, four years after CBOE’s launch with just 16 options on stocks, but only on calls. Sullivan said he pushed for puts because, “Calls without puts was like ham without eggs.”

There is Bill Brodsky, industry historian who is also known as the CBOE chairman and CEO, who steps down in May to the post of executive chairman. His candor about the challenges and frustrations alike was refreshing. He gritted his teeth talking about the five-year battle with the CBOT over CBOE exercise rights and the hoops he jumped through to bring the exchange public.

There were conversations with former vice chairman like Tom Bond, Mark Duffy, Bill Floersch and Gary Lahey who watched the exchange grow from the former smoking lounge at the CBOT to a double-decked trading floor above the historic CBOT trading room (now home to Peak 6) to its own building across the street. Each can tell story after story about how this got built or how important the Black-Scholes Model really is. Wayne Luthringshausen, chairman and CEO of OCC, told us how he and John Gelderman’s son Jeff built the CBOE’s first clearing system’s code, basically from scratch. And there is Dick DuFour of CBOE, who told us about the current CBOE building site – once owned by two competing railroads, and home of the old LaSalle Street Station where they filmed The Sting and screen legends like Clark Gable.

The leadership torch at CBOE will soon be passed to former John Lothian Newsletter guest editor Ed Tilly and Ed Provost (thus maintaining CBOE’s “Ed” lineage among C-level executives after Ed Joyce and Ed O’Connor). Those two men span an interesting historical timeframe at the CBOE as well. Ed Tilly started on the floor in 1985, rose to president and COO of the exchange and will take the CEO post. Ed Provost has been at the CBOE for 38 of its 40 years, and will become president of CBOE. This video started with a first draft of almost two hours, and now condenses 40 years into 26 minutes.

As a journalist in this space since 1996, I’ve had the opportunity to interview many executives who have set and changed the landscape in the futures industry in the US, Europe and abroad. Many of them share similar qualities of vision and determination, but also a focus and ability to see the next pitfall and opportunity. CBOE has had a rich history of those leaders with a lot to share and be proud of.

I invite you to watch the video we produced and hope you find the story as interesting as we did.

We are now well past a year since MF Global‘s collapse seriously damaged the futures industry and now trekking toward six months since the Peregrine Financial Group went down in flames, taking more customer money with it.

Since November, after spending four months putting together solutions to those problems with our Restoring Customer Confidence video series, there’s been a small amount of industry action on what is arguably among the biggest threats to the futures industry’s growth – the lack of customer faith in the marketplace.

It’s been the era of the four “L’s” – low volume, low volatility, low interest rates and lots of regulation. That combination has been hit by the other L – lack of customer faith in these markets. What is sad and frustrating about the issue is that so little of it is talked about. Just one panel at the FIA Expo was devoted to it – “Moving Toward a New Customer Protection Regime.” And just days before the conference, NFA and AlphaMetrix announced a deal that will allow AlphaMetrix to provide the electronic confirmation system for the CME and NFA. A good start but since then, not much to discuss.

By John Lothian & Jim Kharouf

As we head toward the end of a rather difficult year for most exchanges, we also appear to be headed toward the next round of consolidation in the industry. IntercontinentalExchange (ICE) has pulled off the once unthinkable – It has bought NYSE Euronext.

The deal, valued at $8.2 billion, is a blockbuster the industry hasn’t seen in a few years (LME-Hong Kong Exchanges notwithstanding), and it could launch the next round of consolidation in the industry. The futures and options markets have undergone dramatic and somewhat predictable changes in the past decade. The move from member-owned to publicly-owned exchanges opened the industry to flurry of M&A activity in the US and Europe. NYSE and Euronext. CME and the Chicago Board of Trade, and then New York Mercantile Exchange and most recently Kansas City’s bourse. ICE’s bought up London’s International Petroleum Exchange and then the New York Board of Trade, plus a little noticed but well-positioned Winnipeg Commodity Exchange. Nasdaq took on OMX, Nordpool and a PHLX. We’re likely missing a few, but you get the picture.

A Goliath merger between NYSE Euronext and Deutsche Boerse got the KO punch from regulators, as did the ICE-NASDAQ tag-team to buy up NYSE Euronext about a year ago. And now this.

Turnover on the NFA’s Board of Directors comes infrequently. I can’t remember a single instance where a non-Nominating Committee slated candidate succeeded in being elected until Ernest Jaffarian and Douglas Bry were elected last year. This year could be the same with two high profile write-in nominees on the ballot.

James Koutoulas and John Roe, the two co-founders of the Commodity Customer Coalition (“CCC”), are write-in candidates on the ballot for positions on the board of directors of the National Futures Association representing CTAs and CPOs. These two customer-focused media-savvy upstarts square off versus two representatives of the futures industry establishment, George E. Crapple of Millburn Ridgefield Corporation and Tom Lloyd of Campbell & Company, Inc.

Crapple has been on the NFA Board since 1996 and is a member of the Executive Committee. Lloyd is slated for a spot long occupied by Bruce Cleland, the former Campbell & Company, Inc. vice chairman who retired this fall. Cleland currently holds a position on the NFA Board, as well as on the NFA Executive Committee.

In July, I wrote a column about Alaron’s lawsuit against Chris Hehmeyer, the current NFA chairman, former CEO of Penson GHCO and current CEO of HTG Capital Partners.

Well, the verdict is in. The judge in the Circuit Court of Cook County dismissed the case with prejudice on Wednesday, which means it cannot be re-filed. It’s final. And actually, it should not have even come to this. Alaron’s president Steve Greenberg agreed to a legally binding arbitration case with Penson, and separately with Penson’s general counsel Carl Gilmore in 2010 over the transfer of Alaron accounts held at Penson to Peregrine Financial Group (PFG) in 2009. The NFA rulings went in favor of Penson and Gilmore.

But that didn’t work for Greenberg. So he sued Hehmeyer in court alleging “negligent misrepresentation, fraudulent misrepresentation, intentional interference with contractual relationships between Alaron and its introducing brokers” and interference with the sale of Alaron’s customer business to PFG. The suit called for $4 million in damages and another $12 million in punitive damages.

After listening to arguments from both sides, Circuit Court judge Sanjay Tailor tossed out the case, essentially saying “This looks just like the legally binding arbitration you already lost.”

In the end, this was either simply one industry person suing another as is his right, or it was a frivolous lawsuit and a waste of time.

In a broader context, the futures industry is at a point when its leadership’s focus should be on restoring the trust of customers and growing volumes. Let’s not waste more time.

Next week the world’s futures, options and OTC communities converge at the famed Chicago Hilton and Towers for the Futures Industry Association’s EXPO. If you are going to be in attendance, do you have a plan?

I have a plan. My plan is to learn as much as I can about the innovation on display by exchanges, technology firms and even regulators. I plan on hitting the EXPO exhibit hall and going booth to booth to find out what is new and interesting.

I have found some great opportunities and trading tools at EXPO. All the trading platforms I discovered and implemented, back when I was a broker, I found at EXPO.

In my role now, I am privileged to be pitched some great new technology. And I can tell you, there is some pretty cool innovations to be found at EXPO. You will learn about new technologies, but also about new trading instruments, exchange services and opportunities from the regulatory changes taking place.

It has become a quadrennial tradition for presidential candidates and their campaigns to ask if the voters were better off now versus four years ago. It worked for candidate Ronald Reagan and has become part of the modern political playbook since. Mitt Romney and the Republicans appear ready to pop the question to rebut this week’s Democratic National Convention.

I find the timing of this question terrible and timeframe insulting. About four years ago at this time I was readying to go to Japan for FIA Asia. Arriving in Tokyo, I discovered the financial crisis of 2008 had hit a new zenith. Merrill Lynch had been sold to Bank of America, Lehman Brothers had failed and a few days later in September AIG was saved from becoming the financial version of a black hole. That September and October, confidence was gushing out of the markets as every counterparty was called into question and every asset class got clobbered, except for managed futures.

In a Troubled Asset Relief Program, or TARP meeting on September 18, 2008, Fed Chairman Ben Bernanke, reportedly told key legislators and Treasury Secretary Hank Paulson, “if we don’t do this, we may not have an economy on Monday.” On October 3, 2008, the TARP plan was signed into law. (If you want to relive all of this, read or watch “Too Big to Fail.”)

As we search for solutions to the Peregrine Financial Group crime spree and the MF Global non-criminal (so far) implosion, answers to questions about another criminal brokerage firm blow-up go unanswered.

The industry has come forward with after-the-fact solutions to the MF Global issues. The regulators have quickly put in place electronic confirmation of bank statements to address the PFGBEST mess. But despite all of the concern over inexperienced or captured regulators in each of those cases, the the fact is a well-known private equity investor and a robust public accounting IPO process failed to find the ongoing fraud at Refco. One estimate is that Thomas H. Lee and the public accounting firms doing the IPO due diligence spent over $10 million in investigating Refco and did not find their more than decade long fraud.

They busted a guy, finally, for burglary in our neighborhood.

A lot of people around here knew who he was; he was living in the neighborhood that he was stealing from.  On his days off from work, he would wait until mid-morning for his neighbors to head out, and then he’d start checking houses.  Anything of value he could carry away without attracting a lot of attention, he would just grab.  He kept some of what he took, and sold the rest online and at pawn shops.  Turns out he’d been doing it for a couple of years.

The cops got him because a few people in the neighborhood set up surveillance cameras in their homes just in case they got robbed.  The quality of those cameras nowadays is really good, so they had crystal-clear pictures and videos of this guy roaming around and taking things. They were able to connect the dots between stuff that he took with his online sales, too.

The police took several months to get their case together; it was really important to make sure the evidence was complete.  As they built their case, they talked to and worked with the suspect.  They kept him informed of the progress made in the investigation, and he cooperated with them by providing key information and details.  Once they were done and were ready to bring him down, they had meetings with him to discuss the best way to proceed.  After all, he’d stolen and sold tens of thousands of dollars of other people’s property.

In the end, they decided not to arrest and convict him because of the additional cost of bringing him to trial. Instead, the city charged him a $500 fine, sent him a letter warning him never to steal again, and made him sign a paper saying he accepted the terms of the settlement.  They didn’t make him give back any of the stolen goods, though, since most of that had already been sold or had the serial numbers stripped off.

For all of the deserved criticism the National Futures Association (NFA) is getting these days for missing the “steal and spend racket” over at Peregrine Financial Group, the latest lawsuit involving the current NFA chairman Chris Hehmeyer appears rotten. This is a case only the futures industry could cook up and turn into a “You can’t make this stuff up” kind of story.

Let’s start with the Alaron suit and move backward from there. No doubt, many in the industry have seen or heard about the suit filed by Alaron Trading Corporation against Chris Hehmeyer on Monday for $4 million in damages and another $12 million in punitive damages. Among the many items alleged in this 22-page suit in Cook County Circuit Court are: “negligent misrepresentation, fraudulent misrepresentation, intentional interference with contractual relationships between Alaron and its introducing brokers” and interference with the sale of Alaron’s customer business to Peregrine Financial Group in 2009.

In short, Alaron’s president Steve Greenberg is accusing Hehmeyer of not playing fair with the customer accounts Alaron shifted over to Penson GHCO in late 2008. Ultimately, Alaron agreed to sell its business to Russ Wasendorf Sr.’s Peregrine Financial Group for $2 million, and “up to another $2 million if sufficient customer assets transferred to PFG.”