By John Lothian – John Lothian News
Jack Sandner was all the things listed in the headline above, but also many more. He might be remembered for all of them, but I will remember him as a determined defender and proponent of Chicago’s futures markets, especially the Chicago Mercantile Exchange’s.
I was lucky enough to interview Jack for our Open Outcry Traders History Project in 2019. The JLN video team and I went to his offices in the CME Building and amidst the clutter of his office and, bedazzled with memorabilia of a lifetime of service to the Chicago Mercantile Exchange and the CME Group, we set up the lights and cameras.
We produced 39 minutes of (edited) video of Jack, broken into two interviews with the stories of how he boxed, how he talked his way into the University of Notre Dame’s Law School and how he got into a fight at Leo Melamed’s holiday party, which was to be his introduction to the CME.
The story of his talking the dean of the Notre Dame Law School into admitting him early sets the tone for Sandner’s determination and grit. He did not give up easily. After doing well on the LSAT and applying to the law school at Notre Dame, he received a letter that said he was too late, that they had already admitted the freshman class for that year. He drove to South Bend, Indiana, and sought out the dean of the law school, who brushed him off. However, Sandner found the dean’s office and sat in the anteroom all day with the dean’s secretary. The dean would occasionally yell to the secretary, “Is he still out there?” The secretary would get up and go tell the dean yes. Finally at 4:30 p.m., the dean said to send him in.
Sandner laid out his story for the dean, who would ask, “are you done?” Sandner would say, “am I in?” The dean replied “no.” Sandner replied, “no, I am not done.” This went back and forth several times until the dean finally said yes. Ultimately, he earned the Dean’s Award for excellence in appellate advocacy from that same dean.
His determination was also expressed in the fight Sandner won with his first exposure to the CME. He had done some legal work for the president of the CME, Everett Harris. Harris then invited Sandner to a holiday party at Leo Melamed’s office. The problem was that despite Jack’s belief in the importance of the president of the CME, at the exchange the president was not omnipotent as Sandner believed. Sandner, who said in our interview he won 16 “amateur fights,”got into a fight with Eddie Cahill and Wally Wisniewski, a hog broker. The young lawyer Sandner broke Wisniewski’s cheekbone and knocked him out. Needless to say, Sandner did not stick around for the party. Sandner claimed self-defense and no charges were ever brought, he said.
But nine months later Sandner took another look at the CME and filled out an application for a loan from Central National Bank to buy a membership, with the loan co-signed by CME President Everett Harris.
After becoming a member in 1971 and getting established, friends encouraged him to run for the board. Sandner went before the nominating committee of the CME, but did not get nominated. He called it “an embarrassment.”
He decided to run as a write-in candidate for the board. He got the 100 signatures he needed, plus some more, to qualify to be a write-in candidate. His name was listed on the bottom of the ballot as a footnote after the six slated candidates. He wrote a letter to the CME members to promote his candidacy and stated “smart people read the footnotes” in the letter. He ended up being the top vote-getter in that 1977 race and began his long tenure as a CME board member.
By 1979, Sandner was elected vice chairman of the CME board and then elected chairman for the first time in 1980, with the support of his friend and mentor Leo Melamed.
After we produced the video of Sandner’s story, I received in the mail a package of highlights from his career. There was a whitepaper he wrote about “The Congressional Witch Hunt,” which was about the aftermath of the 1987 stock market crash and Sandner’s defense of the futures markets.
At the bottom of the two-page defense description of a congressional attack on the futures markets and a call for overhauls of margins and regulations was this footnote: “Jack F. Sandner, chairman of the Chicago Mercantile Exchange, is a former boxer who likes a good fight every now and then.”
That was Sandner, always a fighter. In fact, the first time I met him in person he put me in a headlock and he started to pretend to hammer me with his other hand.
When I first started the John Lothian Newsletter, even before it had that name, I was not a Jack Sandner fan. For one, I was a CBOT guy, brought into the industry by CBOT traders and worked mostly in the CBOT Building.
Secondly, my employer at the time was not a Jack Sandner fan. Tom Price had traded in the same CME cattle pit as Jack and he was one of the few people that Tom had ill words for. Thus, I was probably a little biased against Sandner.
Then there was the fact that I was a big Jim McNulty fan, the investment banker CME CEO they brought in to help the CME go public. Leo Melamed and Jack turned on McNulty and thus Jack was on the other side of my former mentor, McNulty.
The occasion we first met was the CME Group’s announcement of the Arditti Award, before it later became the Melamed-Arditti Innovation Award. The event was in the Four Seasons Hotel near the Magnificent Mile in Chicago.
I was standing around with a group of reporters talking when Sandner walked up and introduced himself and shook hands with each of us. When I reached out and said, “I’m John Lothian,” he pulled my hand to move me closer and bring my torso down, then he put his arm around my head. He then proceeded to pretend to hammer away at my head with his right hand.
Needless to say, it was a memorable first meeting and uniquely Jack Sandner. I would jokingly tell people about it and say I learned two things, one is that Jack is a fighter and two is that he is a dirty fighter.
There was a former CME FCM owner who would email me every time I would make what he considered disparaging remarks about Sandner in my newsletter. One case was after the 10-year Globex anniversary party at Navy Pier when then-CME CEO McNulty wowed the crowd with some guitar playing and singing. Each of the CME leaders stood up during the event and offered some words about Globex. Leo talked. Terry talked and Jack talked.
I described Jack’s comments as “elliptical.” He was a little off-center and circular in his comments, coming back and repeating himself. It was a great party. He may have had a couple of drinks under his belt. I also remember Leo being in a tuxedo at the party and in short pants, or cut-off tux pants, because he had had some surgery.
The FCM owner emailed me about my comments about Jack. We went back and forth and back and forth. He was a good friend of Jack’s. But finally, he wrote, you are right, Jack is an a**-hole. He told me the story of being at an RB&H Christmas party and Sandner was welcoming guests. One of his traders walked through the door and said hello to Jack and Jack just slugged the guy and knocked him out. The punch was totally unprovoked from the encounter and God only knows what caused Sandner to throw the punch.
Sandner learned how to throw a punch early. He dropped out of high school at 14 and he took up boxing under the former welterweight boxing champ Tony Zale, according to a Chicago Tribune profile of the leaders of Chicago’s futures exchanges at the time. Sandner went 58-2 in Golden Gloves, the Tribune reported, which conflicted with the numbers Sandner told me. I am guessing some of his fights were not all “Golden Gloves” fights.
He gave up the idea of becoming a professional fighter to develop his brains too and ultimately went back to school. He ended up being the valedictorian of his high school class and won a scholarship to college, Forbes reported in a 1993 profile. He earned a bachelor’s degree from Southern Illinois University.
He was described in a profile in “Priorities,” a quarterly publication from Continental Bank in 1982 that his childhood dream was to become an open-hearth foreman in Republic’s steel mill near his South Side Chicago home.
Sandner liked to write, often for law journals or law text books, but he also wrote a book titled “Cure,” a thriller about “how a cancer wonder drug was suppressed,” Forbes reported.
Jack liked a good non-physical fight too. His defense of the futures industry in the aftermath of the 1987 stock market crash is a great example. He told the story of New York Stock Exchange President John Phelan pointing fingers at the futures markets and Chicago Mercantile Exchange for causing the stock market crash of 1987 because of speculative margins, index arbitrage and portfolio insurance. Sandner described it like a slow pitch across the middle of the plate as he defended the Merc and destroyed NYSE President Phelan’s argument. That Merc Chairman Sandner was a lawyer helped immensely in the adverse environment of an open congressional hearing and served the CME well.
In our interview, he also gave a spirited defense of the Merc and the FBI investigation that hit the futures industry in the late 1980s. He compared the trillion-dollar CME markets to a hot dog stand and told a congressman he would find more fraud in the hot dog stand than he would in the CME’s markets.
Sandner’s experience with Washington, D.C., after the 1987 encounters and the dynamic growth of the futures industry encouraged Sandner to recommend a sweeping change to the way the markets were regulated. At the FIA Boca Raton International Futures Conference in 1993, Sandner proposed the creation of a single cabinet level agency to replace the SEC and CFTC, the Federal Financial Regulatory Service. The proposal for a super-regulator was presented to Congress “on May 20 at the invitation of the Senate Banking, Housing and Urban Affairs Committee’s Securities Subcommittee, chaired by Christopher Dodd, a Connecticut Democrat,” the CME’s 1993 Annual Report said.
Sandner had initiated the development of his idea after attending President Bill Clinton’s Economic Summit held in Little Rock, Arkansas, in December 1992. He was the futures industry’s representative at the summit. Ultimately, his proposal, though discussed widely in Washington by the administration and Congress, was not adopted.
Also in 1993 under Sandner’s chairmanship, the CME and the NYMEX agreed to jointly develop Clearing 21, designed to be the industry’s 21st Century standard for derivative financial products. The CME would use the Clearing 21 software in a deal with Marché à Terme International de France (MATIF)f to bring them the trading platform they called Globex2.
That year, 1993, the CME would trade 1 million contracts a day for the first time on March 7 and by year’s end had traded $100 trillion in underlying value of volume of 146,748,990, which was up 9.3 percent for the year. Open interest also set a record at 5,669,178 contracts, representing $4.5 trillion in risk management.
In a 1997 letter to CME members, Sandner said he “urged a thorough analysis of what a merger with the CBOT would mean, especially in terms of the economic benefit it would create for our members and the efficiencies it would spawn for the FCM’s.” He was a major driver in the CME’s efforts to merge with the Chicago Board of Trade during his time as chairman and even afterward.
Sandner said he did not know much about the S&P 500, but was given a quick lesson in New York on a trip to see the people from Dow Jones to negotiate a deal to get Dow futures listed at the CME. The owner of the Dow was dead set against it, but the chief of staff of the Dow walked Sandner out and told him he made a lot of sense and not to give up.
A CME employee who was with him on the trip told Sandner the Dow was the wrong index and the S&P 500 was the right one. Sandner and the CME team stayed another day in New York and met with Standard & Poor’s executives the next day. After a meeting with S&P, he was asked to stay yet another day for another meeting and he met with them at the Cunard Building, where ships used to come into New York. Sandner and the CME team convinced S&P to let the Merc list S&P futures, and that is how they started.
Sandner said he started a campaign at the exchange for members to spend 15 minutes in the S&P pit in order to help it establish liquidity. He had 1,000 buttons made up promoting 15 minutes.
In our Open Outcry series interview, he walked me through the tax-straddle issue that caused Congress to create the 60/40 treatment of trading profits. Sandner testified before Congress about the issue, answering a question from Congressman Barber Conable about whether it was right for people not to pay taxes. Sandner, in a tough spot, said he did not look at things as right or wrong, but rather if they were legal under the current law and tax code. If it was not legal, it was wrong, he said.
We took Sandner’s comments about spoofing from our interview and included them in our Special Report on spoofing. Sandner said if a trader is at risk, then they are not spoofing. He said everyone on the CME board who were traders were guilty of spoofing as currently defined, including current CME Executive Chairman and CEO Terry Duffy. If you are putting orders in that have no risk, if there is no chance they are going to get hit, then that is spoofing, he said.
Sandner also explained how he came up with the idea for broker groups. This development was part of the conflict he had with Leo Melamed. Sandner was planning a vacation with two other brokers and their wives, but one of the brokers pulled out when he became concerned he would not be able to get his deck of orders back when he returned. Sandner said loyalty became the issue. Sandner premised the idea for broker groups based on law partnerships or medical partnerships. Then later, when problems developed with broker groups on the floor, he created a committee called the “probable cause committee.”
The probable cause committee, which Sandner chaired for a couple of years, was the equivalent of a grand jury. They would bring charges against brokers and traders and send the cases to either the floor practices committee or the business conduct committee where a verdict would be determined.
Sandner also helped develop the post-market close period for trades to be executed after the close, an issue that was raised during the FBI investigation. He said it was the fault of the board for not creating a structure for traders to even up their trades after the flurry of trading at the normal close. The risk created by such situations gave traders a level of risk they did want and led to some illegal trading on the curb.
The naming of Globex was an issue during his tenure as chairman. There was a contest to name the system, which was originally named PMT for Post Market Trade. Unfortunately, when PMT was announced at the Buergenstock Conference it was loudly laughed at because PMT is the European version of PMS and stands for premenstrual tension. There was a $1,000 prize for the winner of the contest and when the winning name was picked, it turned out that Sandner was the one who submitted it.
He told us the story of his best trade, which started out as his worst. And it was all because the exchange forced the Hunt brothers out of a big long position in cattle. They are famous for being forced out of silver, but they also had a big position in cattle. Sandner was long a limit speculative position in cattle and knew his order to liquidate the Hunts would hurt him financially. The financial impact was so large that Leo Melamed and Morrie Kravitz called Sandner’s wife, Carole, and told her they were concerned about Jack.
The next day, the market was called limit down, but some buy orders started showing up before the opening. The market ended up opening higher and Jack stayed with his position. He gave an out order to a broker friend and colleague in the pit, and the market came just two ticks from his price. But the market ended the day limit up, then two more limit-up days until Sandner got out with a $100,000 profit. That prompted a trip to St. Peter’s Church in Chicago.
There was one experience I had with Jack though that really helped me understand him. Once a year or so, I would go out to dinner with a group of industry leaders who were friends. When the group started it had a big CME mutual fund investor in it, but he dropped from the scene. One night, the foursome for the evening featured Cboe Chairman and CEO Ed Tilly, though at the time he was just executive vice chairman and the Cboe had not yet gone public. Also there was then-BOX CEO Tony McCormick and also the late Peter Wind.
We were dining at Gibsons in Chicago. It was Tilly’s turn to buy, I believe. McCormick was best friends with Sandner and surreptitiously texted Jack to join us for dinner. Jack showed up and was added to our table for four at the end, though we were in the middle of our meal. Tilly then surreptitiously texted Bill Brodsky, who lived in the area. The next thing I knew we added Bill Brodsky to the table and our table for four was a table for six.
Brodsky and Sandner had worked together when Brodsky was the CME’s president. They started telling war stories about the CME, including the 1987 stock market crash and the Victor Niederhoffer blowout that was the beginning of the Refco scandal and bankruptcy. I learned things I can’t repeat, but it was a most interesting evening. I think that relaxed dinner with friends helped establish a rapport and trust in our relationship.
One of the things I also learned at our Open Outcry interview too was how dedicated Sandner was to his family. He had eight children, all adopted. My wife and her brothers are all adopted, so I have great appreciation for the parents of adopted children. He was a good father, despite all the time he had to spend on the markets, running RB&H, and as exchange chairman with all its demands. I could relate to Jack on this.
I appreciated Sandner’s honesty with me. I always felt he was telling me the truth, which is an admirable quality. It was probably one of the reasons he was so popular at the CME for so long, as he was the longest-tenured chairman of the Chicago Mercantile Exchange.
I got to know Sandner over the years at various CME and industry events. He came to appreciate the role I play in the industry and the impact I have had. I gained mutual respect for him. He was always smiling and upbeat. He was always positive. He was always honest with me, even when he was pretending to hammer me with his fists when we first met, it was an honest expression of his frustration with me at the time.
I will remember Jack for his leadership of the CME, but also for his rivalry with his friend and one-time mentor Leo Melamed. For years, it was Leo and Jack, Jack and Leo. Theirs was an epic rivalry that helped spur innovation and progress at the CME, but also some pettiness for taking credit. But they both deserved credit because their competition made each of them and the CME better. And their leadership helped give us the CME Group that we have today, a global juggernaut that is a leader in trading and clearing of derivatives.