McMahon v. Chicago Mercantile Exchange

582 N.E.2d 1313, 221 Ill. App. 3d 935, 164 Ill. Dec. 369, 1991 Ill. App. LEXIS 1932
CourtAppellate Court of Illinois
DecidedNovember 14, 1991
Docket1-90-1542
StatusPublished
Cited by31 cases

This text of 582 N.E.2d 1313 (McMahon v. Chicago Mercantile Exchange) is published on Counsel Stack Legal Research, covering Appellate Court of Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
McMahon v. Chicago Mercantile Exchange, 582 N.E.2d 1313, 221 Ill. App. 3d 935, 164 Ill. Dec. 369, 1991 Ill. App. LEXIS 1932 (Ill. Ct. App. 1991).

Opinion

JUSTICE LINN

delivered the opinion of the court:

Plaintiff, William McMahon, brought an action in the circuit court of Cook County against defendant, the Chicago Mercantile Exchange (Exchange). Plaintiff sought a declaration determining his rights under an Exchange membership program, and damages for tortious interference with business opportunity and breach of contract.

At the close of a bench trial, the court entered judgment for the Exchange. Plaintiff appeals, assigning error to the trial court’s findings and judgment.

We affirm the judgment of the trial court.

Background

I

The parties agree on most of the trial court’s findings of fact. To better understand plaintiff’s claims, those findings included a review of the Exchange and its rules, and of the Exchange’s membership rights program.

A

The Chicago Mercantile Exchange is regulated by the Commodity Futures Trading Commission (CFTC) pursuant to the Commodity Exchange Act. (See generally 7 U.S.C. §1 et seq. (1988).) The Exchange and its several divisions serve as an exchange for the trading of futures and options contracts.

The Exchange is governed by the Board of Governors (Board). The Board may adopt, alter, amend, or repeal Exchange rules, except where the rulemaking power is reserved to Exchange members via referendum. Exchange rules govern the number of Exchange members and the expansion of memberships; requirements for membership; conduct, fees, and dues of members; and the sale and transfer of memberships with their accompanying rights and interests.

Only Exchange members may trade on the Exchange floor. The extent of a person’s trading rights depends on the type of membership that the trader holds. To become an Exchange member, a person must acquire a membership, must be found qualified and eligible by the Exchange, and must be elected to membership by the Board of Governors.

B

A person may buy a membership pursuant to the requirements and procedures under Exchange Rules 103 through 110. During 1981 through 1985, a person could have acquired a membership also by participating in the Exchange’s membership rights program. The program was designed in part to expand Exchange membership by 25% during the four-year period. The program was approved by the Board of Governors and adopted by Exchange members on April 28, 1981. The program became effective when it was approved by the CFTC on July 27, 1981.

The program created dividends labelled “Membership Rights” (MRs). The MRs were issued to owners of Exchange memberships on a pro rata basis on the date of the program’s adoption, April 28, 1981. These MRs could then be sold or leased. Each MR entitled the holder to a prescribed amount or level of trading privileges. The holder of multiple MRs gained additional trading privileges. If a person accumulated four MRs in the same division of the Exchange, he would receive, upon application, a full Exchange membership.

For example, on April 28, 1981, the Exchange’s international monetary market division had 650 members. On that date, the Exchange issued one MR to each member and auctioned an additional two MRs in the division. As a result, the monetary market had a total of 652 MRs, which could ultimately be combined into 163 full memberships, i.e., an increase of 25%.

The Exchange created a “Membership Rights Committee” (MR Committee) to oversee the program. The committee could investigate matters, and advise and assist the Board, in connection with the program. However, neither the MR Committee nor the Exchange’s membership department could alter or amend the MR program’s rules. Such power, as was generally the case, was vested in the Board of Governors or reserved for Exchange members.

Exchange Rules 151 through 153 governed the requirements for MR applicants, transfers of MRs, and the ultimate conversion of MRs to full memberships. Rule 151 provided that an MR applicant had to meet the same requirements as an applicant for an Exchange full membership, and was subject to all applicable Exchange rules. Rule 152 provided that MRs could be sold or transferred privately among members, but only in accordance with Exchange rules for the sale or transfer of full memberships, specifically including the posting of the transaction and, in case of a sale, the deposit of the proceeds with the Exchange. Rule 153 provided that once four MRs were combined to create a full membership, the MRs were cancelled.

Under the Exchange’s bid and offer procedure, an MR holder who wished to sell an MR could submit a formal offer to the membership department. The offer stated the price at which he would sell. Conversely, a member who wished to buy an MR could submit a formal bid to the membership department. The bid stated the price at which he would buy. The bid must have been guaranteed by a clearing member of the Exchange, or a certified or cashier’s check must have been deposited with and made payable to the Exchange for the full purchase price.

The membership department posted on its office bulletin board the amount of the highest bid to buy, the amount of the lowest offer to sell, and the most recent price of an MR sold between members through the auction process. The membership department matched the bids and offers submitted. When an agreement or “match” occurred between a bid and an offer, the department would notify the buyer and the seller.

Within two business days of notification of a match, the buyer of an MR or full membership must deposit a transfer fee with the Exchange. The buyer must also deposit, if he did not do so earlier, the full purchase price. The buyer must then apply for membership. Until the application and payment requirements are met, the buyer cannot receive the privileges attached to the MR.

The MR program did not include a means to force or ensure the conversion of the final MRs at the program’s conclusion. An MR holder was on notice that his MR would expire worthless if not combined with three others by the close of the program.

As stated earlier, the Exchange adopted the MR program and issued MRs on April 28, 1981. In anticipation of approval by the CFTC, the Exchange distributed MRs to membership owners in May 1981. Beginning May 12, the Exchange allowed MRs to be bought or transferred and began the process of qualification for new memberships.

The CFTC approved the MR program on Thursday, July 23, 1981. The next day, the Exchange reported to its members that the program had received Commission approval, and that all qualified MR holders could begin trading on Monday, July 27. Exchange Rule 154 set the MR program term as follows: “MRs shall expire four years from the issuance date unless sooner converted into Exchange memberships.” The rule identified Monday, July 27, 1981, as the effective date of the program; the Exchange interpreted this date to be the “issuance date” for determining the program’s final day. The date that fell “four years from” Monday, July 27, 1981, was Saturday, July 27, 1985.

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Bluebook (online)
582 N.E.2d 1313, 221 Ill. App. 3d 935, 164 Ill. Dec. 369, 1991 Ill. App. LEXIS 1932, Counsel Stack Legal Research, https://law.counselstack.com/opinion/mcmahon-v-chicago-mercantile-exchange-illappct-1991.