Joe Sullivan’s Influence and Success, Part 2

John Lothian

John Lothian

Executive Chairman and CEO

Wayne Luthringshausen is another person whose career was influenced by the arc of Joseph Sullivan’s option exchange startup crusade to create the Chicago Board Options Exchange.

Luthringshausen was working for a brokerage firm in New Orleans that traded fifty percent stocks and fifty percent commodities futures. In 1970, the firm was being sold and Luthringshausen was looking for a better opportunity. He was an operations specialist in settling over the counter options for the firm.

He wanted to go to Chicago and find a bigger opportunity, and Joe Sullivan was one of the people Luthringshausen was introduced to by people in the Chicago office of the firm.

After the first meeting with Sullivan over lunch on a snowy February day at a Holiday Inn in the north shore suburbs of Chicago, Luthringshausen knew he had a job and he started in June.

Luthringshausen was a member of a six-person team of people who worked on the options exchange project for the Chicago Board of Trade. There was a lawyer, a couple of guys who would go to the floor and trade options after the launch, a woman who ran operations, Luthringshausen and Sullivan. Luthringshausen described his job title as “peon” when he started.

He called Sullivan “the greatest project team leader I worked with in my life.”

The challenge was not only to get the SEC to approve the CBOE, but also to keep the Chicago Board of Trade board and members funding the project. There was about a year and a half time frame after all the rules were written and filed with the SEC before trading started. This took persistence and endurance on both accounts.

Luthringshausen described the SEC people as “tough,” and a “hard sell,” but good people.

One area in which the project team had an easier time than they thought was convincing account executives at brokerage firms to offer options trading to their clients. In the early 1970s, stock trading was slow and brokers were looking for new products to encourage clients to trade. This new options exchange gave brokers something new to sell.

Luthringshausen was the clearing guy on the team, though everyone did a little bit of everything, he said. He took the rules from the Board of Trade Clearing Corporation and translated them into rules for an options clearing organization.

When the CBOE Clearing Corporation launched, Eddie O’Connor, the CBOT member who dreamed up the idea and who served as the vice chairman of the CBOT board, was the chairman of the clearinghouse. Joe Sullivan was the president. Luthringshausen was a vice president, though he would progress to EVP, president and ultimately chairman.

When the CBOE started trading, only calls were offered for trading. The margins for options treated them like stocks. Both approaches were inadequate and traders pushed for puts.

Six months into trading, the margin issue was addressed and changed to reflect the early understanding of the greeks.

When the AMEX followed the CBOE in trading options, the SEC strongly encouraged the idea of one clearinghouse for options. Since the Chicago Board Options Clearing Corporation was up and running, it was selected to become the industry utility clearinghouse. Luthringshausen was OK with that outcome and was named president of the new Options Clearing Corporation.

The name was actually suggested by an AMEX employee. The OCC took in three employees from the AMEX upon the deal to combine resources.

Sullivan eventually left the CBOE in 1979, along with the late Ivers Riley, to start an options consulting firm on Wall Street. Riley, who later became the founding chairman of the International Securities Exchange, had earned the name “Mr. Puts” for his relentless efforts while working at the CBOE to add puts trading.

Luthringhausen said Sullivan was the “fairest and nicest” person he ever knew. “I really liked Joe Sullivan,” he told me.

Luthringhausen even said Sullvan helped make him a better, though “adequate” writer as Sullivan, a former Wall Street Journal reporter, would return memos Lutheringshausen submitted with red marks all over them and never a grade above a “C.”

Sullivan’s love of journalism and Knoxville, TN eventually brought him back to his roots, and he bought a small newspaper there and ran it for several years. 

Sullivan had a great smile, Luthringhausen said. It was almost shy, but he was aggressive when he wanted to be. “Joe got it done,” Luthringhausen told me about the creation of the CBOE. 

 

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