A week ago, Crypto.com unveiled a sports-focused version of its platform, enabling users to trade event contracts on “The Big Game.” A promotional video is pinned to the Crypto.com X/Twitter feed, and the new offering is prominently featured on the frontpage of its website.

As of Sunday night, Kalshi has paused its markets related to murder and on Monday morning the contracts had disappeared from the Kalshi site. Previously listed contracts included “Did Luigi Mangione or a family member have UnitedHealthCare insurance?,” “Will only Luigi Mangione be charged in connection with the killing of the UnitedHealthCare CEO?,” and “Will Luigi Mangione plead guilty to murder?.”

The rise of self-certified event contracts by non-traditional market participants — offering contracts serving no economic purpose beyond pure speculation — is eroding the trust and hard-earned reputation that futures markets have built in the modern trading era.

However, B-shareholders face a hurdle as CME lawyers will seek to decertify the class-action case in late January 2024 and also seek a summary judgment. The odds of success for CME in the decertification effort are slim, given that most certified class-action lawsuits are not decertified. Regarding summary judgment, it appears that there is a genuine dispute over the definition of a trading floor and related matters within the CBOT and CME core rights. This disagreement makes it unlikely to succeed.

As the case nears its conclusion, membership prices still primarily reflect their utility as trading rights rather than their potential value with a settlement. Some believe these memberships are undervalued and have been actively buying them over the past couple of years.

It's important to note that not all memberships are part of the class-action case, with firm memberships and those owned by exchange staff excluded. The time period for memberships to be included in the class has passed, meaning one can only join the lawsuit by purchasing a membership without certainty about its inclusion.

This situation could lead to the sale of memberships by the estates of long-time CME or CBOT members that include the right to participate in the lawsuit, potentially without the seller's awareness of the lawsuit's value.

Corporate members of the CME Group, who leverage single memberships for trading of multiples of traders, may find a resolution of the lawsuit has changed the CME's membership business model, leaving them with higher costs for accessing the markets. 

"If it (the lawsuit) goes to trial and if you look at the risk to CME, if we win on Aurora being a trading floor, there's the damage number for the value of the exclusivity right that members haven't enjoyed for the past decade," said Steven E. Morrissey, the plaintiffs attorney. "Then there'll be a past damages number for that that's limited to the memberships that are in our class, which are individual memberships, but that number will be in excess of $1 billion in past damages."

"And then we'll also seek a declaration that Aurora is a trading floor, which would require CME to deal with the issue going forward as well," he said.

Furthermore, the class-action lawsuit may deter Cboe Global Markets from entering negotiations for a potential deal, particularly one involving CME stock. Similar to the Cboe-CBOT trading rights dispute that needed resolution before the CME-CBOT merger, this lawsuit might need to be resolved before any Cboe and CME deal can proceed.

The CME Group declined to comment on this story. 

What this is All About

The CMELawSuit.com website says this about the lawsuit: 

The lawsuit alleges that Defendants CME and CBOT have breached their obligations to the Class B Plaintiffs by denying the Class B Plaintiffs the best and most proximate access to the Globex electronic trading platform at the Aurora Data Center (“ADC”), by denying the Class B Plaintiffs the right to trade the full range of CME products on Globex at member rates, and by requiring the Class B Plaintiffs to pay certain fees for colocation at the ADC. Plaintiffs further allege that Defendants violated the Class B Plaintiffs’ rights by allowing Electronic Corporate Members and, on information and belief, other non-member customers to exercise the trading rights and privileges of exchange members without purchasing or leasing seats on the exchange, and by providing preferential fees to certain non-member customers. Plaintiffs seek damages and injunctive relief. The lawsuit, Langer, et al. v. CME Group, Inc., et al., No. 2014 CH 00829, was filed on January 15, 2014 and is currently pending in the Circuit Court of Cook County, Illinois, Chancery Division.

Since the launch of the Aurora Data Center ("ADC") by CME, the values of B-shares and A-shares have moved in opposite directions. While CME executives, board and staff receive performance-based rewards in the form of A-shares, the same does not apply to B-shares, according to a CME member.

A-shares have surged in value, increasing fivefold since the ADC's launch, while B-shares have plummeted, losing 75% of their value during the same period, as indicated by the member.

The trader emphasized the wisdom of purchasing a membership rather than leasing one, considering it among his best decisions. He explained that he might have been one of the numerous individual members who left the industry when faced with several months of trading losses if he had leased a membership. He credited a seasoned trader who once advised him, saying, "A carpenter does not rent his tools."

However, with membership prices sagging over the last few years, it has been easy for traders to lease instead of buying a membership, which has made it all too easy for individual traders to walk away when trading results were negative. 

The judge wants the two sides to come to a mediated solution, rather than leaving it up to a jury unsophisticated in the ways of market structure. Should the decertification and summary judgment efforts of the CME fail this winter and spring, look for this case to move quickly to a mediated solution. 

The plaintiffs' attorneys specialize in high-stakes cases such as the CME Group's legal battle against members of the Chicago Mercantile Exchange and the Chicago Board of Trade. Stephen E. Morrissey, co-lead counsel on the CME case from Susman Godfrey, serves on the Susman executive committee and previously chaired the expert committee in a complex litigation related to the contamination of the Flint, Michigan water distribution system. In that case, Morrissey's team has successfully obtained court-approved settlements valued at $626 million with several governmental defendants, including the state of Michigan.

This case might also be influencing the length of CME Group Chairman and CEO Terry Duffy's employment term, which was recently extended until the end of 2025. The CME Group board may not wish to have this lawsuit looming over the head of a new CEO.

Ultimately, the mediation is about monetary damages only. Dragging out the resolution of the lawsuit could continue to impact membership prices, legacy members' estates, individual trader retention and could have implications for future negotiations, deals and senior executive employment. 

JLN Deputy Managing Editor Suzanne Cosgrove gave her notice to John Lothian News and accepted a position with Purpose Brand, a woman-run, Chicago-based PR, brand, and digital marketing company that’s all about diversity and inclusion and seeks to expand its coverage of financial firms. She leaves JLN at the end of the year and starts her new position on January 3, 2022.

Suzanne joined JLN after having been part of the communications team at Cboe for the previous five years. She also spent 10 years at the Chicago Tribune, and it was a former colleague at the paper that recommended her for the new job, for which she was recruited. 

I am happy for Suzanne and grateful for the two-plus years she spent with JLN. She and I first crossed paths at Commodity News Service in the 1980s when she was hired for a position for which I was also a finalist. We eventually worked together at CNS, later known as Knight-Ridder Financial News, when I was hired there several months later. 

Suzanne is a superbly talented writer and an excellent reporter and editor. In fact, her editing left me wondering whether English was in fact my first language. In the old days, she would have run through a lot of red pens editing my work.

I am very proud of the work Suzanne did for JLN, particularly the excellent Special Report on Spoofing which she collaborated on with former JLN colleague Thom Thompson. Suzanne showed a healthy appetite to try new journalistic styles, including podcasting, video and convergence journalism. She and Thom also pioneered JLN’s “botanicals” beat, covering the business of cannabis and hemp. She will be missed by the entire JLN team.

However, I am happy to report that Suzanne has agreed to become a consultant to JLN to coach Alex Perry in her work on The Spread. Additionally, we are adding Suzanne to the JLN Advisory Committee. 

Alex, who joined JLN this fall as an intern after graduating from the Medill School of Journalism at Northwestern University with a master’s degree, has been officially hired by JLN as an associate editor. Alex will continue her work on The Spread and add more original content to  our coverage of options and the global exchanges. Alex will also become part of the JLN traveling team and will act as principal videographer at the FIA’s Boca conference in March.

Additionally, we are seeking to hire an intern or a part-time writer for the JLN team. Contact me at johnlothian@johnlothian.com if you know of someone who is qualified and interested.

In a recent JLN interview, Donnie Roberts, the CEO of the Small Exchange, said he “want(ed) people to join a bit of a revolution that we feel we have started.” If Roberts is going to succeed, he is going to have to put on his Phrygian cap and start a real revolution. 

Luckily for him, there is a revolution in retail trading happening right now. 

One of the elements that has propelled the Small Exchange to its early success is also the thing that could hold it back from a revolution. That element is its strategic owners, who have strong ties to the dominant exchanges. Small Exchange’s strategic investors, like Citadel, PEAK6, Jump Trading, IBKR and Phillip Capital, need to balance their revolutionary zeal with their much larger business interests in the dominant exchanges, e.g., CME Group and Intercontinental Exchange.