On December 6, 2002, the Chicago Mercantile Exchange sold shares to the public at $35. It was the first American financial exchange to list its own stock, and plenty of smart people passed. The exchange wasn't the trade, the thinking went. The exchange was just the place where trades happened.
The total return since that day is roughly 6,325%. The S&P 500 turned a dollar into about ten over the same stretch, with every dividend reinvested. CME turned it into more than sixty.
This is the first of three issues on that trade. Not the one you missed, the one setting up again.
The Club Goes Public
When I got to the floor in 1978, no exchange was a stock. They were member clubs. Your seat was your equity, your edge was your income, and the systems underneath the market belonged to the members who used them. Then the clubs demutualized, one after another, and sold the public a piece of the toll booth.
ICE listed in November 2005 at $26 a share. A thousand dollars in at the offer was worth about twenty-five thousand two decades later. Cboe, my old home, came public in June 2010 at $29 and trades around $300 today. Nasdaq did the same. NYSE went public in 2006 and sold itself to ICE seven years later.
The members who took stock in those deals never had to call another market correctly. They owned the toll booth, and the toll got paid either way.
Why the Toll Booth Wins
None of these companies predicts prices. They don't need to. They charge for access, matching, clearing, data, and settlement, and volume pays the toll in both directions. A brutal year for stocks is a fine year for an exchange. Traders compete away each other's margins. The operator compounds.
That asymmetry is the whole reason exchange stock has been one of the great compounding machines in American finance. It is also the reason the biggest banks in the world are fighting over who operates the next version of the market, while the public argument stays fixed on the assets that will trade on it.
The Same Bet, Being Placed Again
Look at where the money is actually going. JPMorgan has processed more than $4 trillion on Kinexys, its blockchain settlement platform, with daily volume above $7 billion. BlackRock's tokenized funds have passed $2.9 billion on chain, and it added two more money market products on August 3. The largest U.S. banks are building a shared tokenized-deposit network through The Clearing House, the industry-owned payments group that has settled bank obligations since 1853.
CoinShares CEO Jean-Marie Mognetti made the point in a report last week: blockchain was never going to replace the financial system. It is replacing the back end, and the banks are the ones building on top of it. Meanwhile the venues that sold ideology instead of access are going dark. BitMEX, the exchange that invented the perpetual swap, closes September 23 after eleven years.
That sorting, who dies and who gets absorbed, is next week's issue.
Where the Three Issues Go
This series makes one argument in three moves. You just read the first one, so here is where the other two go.
Next week, the filter. Four crypto companies are failing or restructuring this year, each for a different reason, and not one of them built a real toll booth. Meanwhile the biggest banks in the world are finishing the tokenized version of theirs, and Europe has already shown what happens to whoever is left outside the license when it lands.
Then the position. If the first two issues hold, the last one is the practical part. Which of these operating businesses I would actually own a piece of, at what size, and where my own money already sits.
Bottom Line
Tokenization keeps getting scored as a crypto story, up when coins are up, dead when coins are down. Anyone holding exchange stock has already been on the right side of the difference between the venue and the assets. Accountants left their green ledgers when the new machine did the same job faster, and the firms that sold that machine got paid for decades.
One more name belongs on that list of who is building the next version: Liquid Mercury, the company behind $MERC, which is trying to occupy a piece of that same operating layer for tokenized markets. I am not making a case for it here, and I am not telling you to buy it. I am the company's founder, so I will say plainly where I stand on it when this series reaches Part III. For now it is simply one more data point in an industry more crowded than most investors realize.
I've spent forty-eight years in the market, about fifteen of them on the floor, watching the market's operating layer change hands once already, from the members to the shareholders. Owning it beat trading through it then. I don't see why this time would be different.
Disclosure, not a recommendation: I am the founder of Liquid Mercury, the company building $MERC.
All the best,
— Tony
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