Photograph: Simone Bonde

Chairman Terrence Duffy (left) and CEO Craig Donohue foresee a future full of possibilities for the now publicly held Chicago Mercantile Exchange.

Seated at a table during a recent luncheon, the top brass of the Chicago Mercantile Exchange fidget as if they're itching to get back into the trading pits that are a trademark of the city's brawny futures business. Jack Sandner, retired Merc chairman and board member, taps on his BlackBerry. Leo Melamed, Merc chairman emeritus and a board member, checks voice messages on his cell phone. And Craig Donohue, the Merc CEO, works both his cell and his BlackBerry. All this electronic interfacing goes on as they munch eggplant Parmesan and wait to hear a presentation that includes a speech from the Merc chairman, Terrence Duffy. Suddenly, Sandner looks around and asks his colleagues, "Hey, who's running the Merc?"

But perhaps the bigger and more complex question is, what's next for the 108-year-old exchange? The institution that these type A personalities have helped grow and run is in the midst of an unprecedented transition, one that began more than three years ago when it made the giant leap from a member-owned institution controlled by those who held seats on the exchange to a publicly traded company. That conversion minted a rash of new multimillionaires-many of them floor traders-who owned exchange seats and cashed in some or all of their chips.

Although other exchanges are following suit, including the rival Chicago Board of Trade and the New York Stock Exchange, the Merc is the first to go public and the most triumphant. The proof is in the numbers: the Merc's initial public offering was $35 a share, but at press time the stock was trading up more than tenfold on the New York Stock Exchange at about $408, giving the Merc a market capitalization of nearly $14 billion and making it one of the Chicago area's largest publicly traded companies. What's more, it carries no debt and its balance sheet boasts nearly $820 million in cash.

Yet the Merc's fathers have to worry that the exchange does not become just another fat-cat financial services company. No longer controlled by the commodities cowboys who often generated the moneymaking ideas and products, the Merc ownership is now dominated by corporate gray-bottom-line institutional investors who own about 60 percent of its shares (and intend to buy even more) and who will demand steady growth, increased earnings, and an even higher stock price. "Our purpose is very clear," says Donohue, the CEO: "create value for the shareholders and increase the value of the stock."

That's arguably a significant change from the original mission to trade futures contracts as a way for farmers to stabilize crop prices. In their 158-year existence, futures markets have evolved from forums for trading agricultural goods (the Merc's forerunner was the Chicago Butter and Egg Board, started in 1898) into global businesses used for trading commodities such as gold, oil, and financial instruments such as government bonds, currencies, and equities. Increasingly, sophisticated big investors, such as corporations and hedge funds, use futures contracts to balance out their investment portfolios. To meet growing demand, the Merc has also moved toward nearly 24-hour electronic trading, slowly erasing one of Chicago business's most time-honored images-frantic traders screaming and gyrating as they use the "open outcry" method to execute trades from the pits on the Merc's floor at 20 South Wacker Drive. To be sure, a lot of that craziness still goes on, but it is diminishing. Last year, 70 percent of the trading volume was handled by means of Globex, the exchange's electronic platform, an increase from the 57 percent tallied the year before.

Floor trading "makes for great theatre and stories," says Duffy, the Merc's chairman, who started out trading in the pits. But, as he acknowledges, most of the action is now taking place on computer screens located in the trading rooms of institutional investors all over the world-transactions that can literally take place in a split second. (Duffy no longer actively trades and is now a full-time Merc chairman; he earned $950,000 in 2004.)

A few years before the December 2002 IPO was made, the Merc began preparing for life as a publicly traded company by converting from an association into a for-profit concern that issued two different classes of stock to its members. Some stocks were for Merc ownership (class A), while other shares (class B) were for futures trading rights. The class A shares, of which 26 million were distributed to Merc members, were issued to the public via the IPO.

At that time, some seat owners unloaded all their shares; others sold incrementally as the stock price rose. Those who held tight are reaping a windfall. For instance, a benchmark, pre-IPO $900,000 Merc investment-consisting of a bundled package of nearly 18,000 class A shares and one class B trading right share-is now worth about $10 million. "You'd have done really well, if you held on to it," says Meghan Crowe, equity analyst with Morningstar, the financial research house. "And some insiders have done very well."

The Merc's booming stock price continues to induce some well-placed Merc traders and managers to cash out. Merc insiders sold a total of 142,233 shares during the last six months of 2005, according to Securities and Exchange Commission filings. Among the most active sellers is Jack Sandner, who was one of the company's largest individual shareholders and the largest shareholder on the board. The former Merc chairman lightened his load by 60,000 shares, for nearly $17 million, during that timespan, according to SEC reports. Sandner, who has eight children ("That's really open outcry," he says), notes that the selloff is part of his broader estate planning strategy and not a reflection on the Merc's outlook or prospects. "We've only touched the tip of the iceberg," he insists.

Corporate investors seem to agree. With about 34 million shares outstanding, insider ownership is near 2 percent, while institutional holders have a 57-percent stake in the company, according to a November 2005 report by Kintisheff Research, an independent global equity research firm located in Sofia, Bulgaria. So far, those big institutional holders have little to complain about. In the third quarter of 2005, the exchange's parent company, Chicago Mercantile Holdings Inc., enjoyed a 30-percent increase in net income to $77 million, or $2.22 per share. What's more, last year the Merc had an average daily trading volume of 4.2 million contracts, up 34 percent from the year before. The Merc gets a transaction fee on each trade, which accounts for the bulk of its revenues and profits. "Keep in mind that this was a very Chicagocentric company," says Joel Gomberg, an equity analyst with William Blair & Co. "But by moving to electronic trading, it's extending its tentacles all over the world."

The happy circumstances lead Chairman Duffy to comment, "Wall Street is more patient than people perceive it to be." But with a stock price at more than ten times its original value, the Merc has hardly tested the Street's resolve. Over time, investors are likely to press Merc management to keep the exchange growing, whether by spawning new products, furthering international expansion, or tapping its hefty cash reserve to merge with or buy another exchange. The prospect of that kind of pressure leads some traders to fret that the Merc's hierarchy will become more attuned to its investors' appetites than to the traders' concerns.

For instance, in comments on Internet message boards, traders have wondered if management will be as receptive as it was in the pre-IPO days to new products or other ideas that bubble up from the trading floor. A membership-based association has the flexibility to bankroll projects or explore risky avenues, but a publicly traded company is less likely to gamble with the shareholders' money, the traders observe.

"I spent my formative years in the pits, and the best ideas came from the floor," Leo Melamed says. Still, he and other Merc executives note that serious streamlining had to be done once the exchange set its sights on going public-like getting rid of nearly 200 membership committees. Now the Merc has about ten standing committees (some of those, such as an audit committee, are strongly recommended by the SEC). Management argues that traders aren't being shut out from making their cases, and that the decision-making process has actually speeded up. "They've accepted that it's a pretty good deal," Melamed says.

Going forward, however, floor traders will not be the only group getting management's ears. Donohue points out that the exchange's expanding customer base will enable other users, including international corporations and hedge funds, to weigh in with their ideas. No matter who calls, it is up to management to give the green light. "Sometimes we'll take a chance; sometimes that won't be the case," Donohue says.

Recently, the Merc has been taking more chances with international expansion. Already with locations in Europe and parts of Asia, the exchange recently opened a small Singapore-based telecommunications office that will help speed transactions and lower fees on Globex transactions from the Far East. In addition, the Merc recently premiered electronic trading for futures contracts for selected companies based in Hong Kong, South Korea, Singapore, and Taiwan. (The Chicago Board of Trade is also getting into the Far East act, entering a partnership with the Singapore Exchange.)

William Blair & Co.'s Gomberg says the Merc is likely to look at more international endeavors. "It makes sense," he says.

"There are already emerging futures exchanges in Mexico, South America, central Europe, and Asia."

"I expect we'll be in every corner of the globe," asserts Melamed.

All this activity sparks speculation that the Merc will soon be making a dramatic acquisition of another exchange. Indeed, with $820 million in ready cash, and a sky-high stock to use as currency in a merger or acquisition, the Merc appears poised to strike somewhere, and soon. "The question that keeps coming up is, what will it do with all that cash?" says Morningstar's Crowe.

One idea that's been banging around for years is a merger with its Chicago-based rival, the Chicago Board of Trade, which already clears more than 500 million trades annually through the Merc's contract clearinghouse system. A merger would allow the two exchanges to cut administrative and operational costs (and might even prompt the eventual shutdown of one of the trading floors). While the two have occasionally been cozy, they've never agreed to a walk down the aisle, mostly because of their ingrained rivalry.

There's also speculation that most stock and futures exchanges are ripe to enter a consolidation phase and that the Merc could end up a seller, not a buyer. As a publicly traded company, the Merc now finds that its fate rests with those new institutional owners who wouldn't think twice about making a deal-if the price were right.

Still, with the stock trading above $400 a share, a buyout appears unlikely, not to mention abhorrent to some in the Merc's leadership. When asked about the possibility of a sale, Jack Sandner replies simply: "That's an impure thought."