THE CHICAGO TRIBUNE headline was ominous: "Clearing Corp. Clears Its Decks for Looming Demise," the business page screamed on July 14, 1998. At that moment, the Board of Trade Clearing Corp., the back-office operation that had cleared transactions for the Chicago Board of Trade futures markets for 73 years, seemed as good as dead. And there was little Tom Hammond or Brett Paulson could do about it.

The reasons were simple. After more than six years of talks, the Chicago Board of Trade was finally getting serious about merging the Clearing Corp., where Hammond was the number-two business executive and Paulson the CIO, with a similar organization at the nearby Chicago Mercantile Exchange. The merger would cut costs because the Clearing Corp. and the Mercantile Exchange's clearing organization served the same function. Plans called for the liquidation of the Clearing Corp. in favor of a new, independent organization using the Clearing 21 system the Mercantile Exchange was developing. That made the Clearing Corp. -- already the subject of critical reviews for allegedly inflexible and outdated information systems -- redundant.

The Clearing Corp. operates separately from the Chicago Board of Trade in a setup designed to protect traders and the integrity of the market. Yet the Board of Trade was, until recently, the Clearing Corp.'s only customer, and it's the 93 member companies conducting business at the Board of Trade that fund and govern the Clearing Corp. (Other clearinghouses are subsidiaries owned by the exchanges they serve.) This all meant, in 1998, that executives at the Clearing Corp. would learn their fate from the Board of Trade leaders conducting merger talks with the Chicago Mercantile Exchange. That word came in September 1998 when the merger talks unexpectedly died. The Board of Trade nixed the deal after the Chicago Mercantile Exchange announced an alliance with Cantor Fitzgerald, a New York City-based electronic exchange that intended to compete with the Board of Trade. At the offices of the Clearing Corp., Hammond and Paulson and their staff set about turning what had been a "looming demise" into an opportunity. They had survived, but a struggle to redefine their organization had just begun. And it would be two years, until fall 2000, before they could roll out their plan to strengthen their position in Chicago and set the stage for new sources of revenue with a B2B e-commerce play.

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