By Oliver Ryan

(FORTUNE Magazine) – SUDDENLY AMERICA'S SECOND CITY finds itself in first place--and it's not just because the White Sox are finally World Series champs again. On Oct. 19, after 157 years as a private, not-for-profit cooperative, the Chicago Board of Trade went public. Investors sent BOT shares up 130% in the first week, making the IPO one of the hottest of the year. The Board of Trade hopes to follow the path of its crosstown rival, the Chicago Mercantile Exchange. Since 2002, when it became the first U.S. financial exchange to go public, the Merc has seen its shares rise 740%.

The combined market cap of the two Chicago futures exchanges is now $18 billion--three times the value of the New York Stock Exchange and Nasdaq combined. By at least one important measure, then, the center of gravity of America's financial markets has moved from Wall Street to the Loop. "The big brother has become the poor cousin," says Cynthia Zeltwanger, CEO of broker Fimat USA.

The shift may well be permanent. Those market valuations--not to mention the very concept of public, for-profit exchanges--are a reflection of two structural trends: the migration of American exchanges to electronic trading and the explosive growth of financial derivatives. Borderless, timeless, onscreen trading is forcing exchanges to dump their clubby, not-for-profit structures and reemerge as tech-driven, profit-maximizing corporations. Witness the New York Stock Exchange's decision last April to merge with the publicly traded, high-tech Archipelago. But in this new competitive landscape, the future looks brighter for Chicago's futures markets than it does for New York's stock markets.

The Chicago exchanges still trade futures on pork bellies, soybeans, and cattle, but the bulk of their revenue now comes from their near monopoly on financial futures--derivatives contracts on interest rates, foreign currencies, stock indexes, and even the weather. And the business is booming: Since 2000 the volume of exchange-traded derivatives in the U.S. has more than doubled.

Even better, trading derivatives is a more attractive business than trading stocks. In part, that's because each derivative contract is proprietary and can be traded only on the exchange that created it. By contrast, stocks can be bought and sold on any exchange.

The Chicago exchanges have already demonstrated the power of proprietary products. Last year the two main European exchanges, Eurex and Euronext.liffe, tried to horn in on Chicago's turf. They created their own version of two popular U.S. interest rate contracts. But they failed to draw significant business away from Chicago. "We've faced down our competitors pretty successfully," says Merc CEO Craig Donohue.

As the for-profit exchanges seek to grow, most observers expect further consolidation. One long-rumored possibility is that the Merc and the Board of Trade will eventually merge. But there are smaller operations that either exchange could pick up first. Down the road, nobody rules out the possibility that the Chicago powerhouses could get into stocks, challenging Nasdaq and the Big Board. Trading stocks and derivatives on a single system is already the norm in Europe.

It's safe to say that any battle between New York and Chicago would be played out in part in D.C., where both markets have deeply entrenched political allies. When it comes to 100-year-old symbolic institutions, free-market competition may prove to have some limits. Still, the White Sox may not be the only pinstriped Midwesterners New Yorkers are going to have to put up with.