The $8B CME & CBOE Deal
Tuesday, October 17, 2006SUSIE GHARIB: It`s a mega merger in Chicago that will result in the world`s largest futures exchange. The Chicago Mercantile Exchange and the Chicago Board of Trade are merging. It`s an $8 billion deal. As Midwest bureau chief Diane E1stabrook explains, the sheer size of the combination could prevent other exchanges from muscling into the booming derivatives business.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Chicago Mercantile exchange and the Chicago Board of Trade say cutthroat competition in a global market brought them together in a marriage that ends a century-old rivalry.
TERRENCE DUFFY, CHAIRMAN, CME: We view the merger we are announcing today as the logical next step in the ongoing evolution of our respective high growth businesses.
EASTABROOK: If approved by regulators, the combined company will be called CME Group Incorporated. It will trade about 9 million futures contracts the day valued at more than $4 trillion. The merger could save the two exchanges up to $125 million in costs by its second year. Officials from both exchanges say perhaps even more importantly, the combined firm will maintain Chicago`s status as the futures powerhouse and keep jobs in the windy city.
CHARLES CAREY, CHAIRMAN, CBOT: As we witness consolidations taking place, this is going to go a long way to insuring that those jobs stay here in Chicago, supporting these -- this one great exchange.
EASTABROOK: In Chicago, the merger did not come as a huge surprise. Officials from both exchanges have been talking for nearly three decades about a possible deal. The first step came a few years ago when the Chicago Board of Trade began clearing its trades through the Merc. Exchange officials say consolidation among member firms paved the way for an all-out combination.
CRAIG DONOHUE, CEO, CME: They were looking for more efficiency, the ability to offer all of our products across a single globally distributed electronic trading platform represents new opportunities to lower their cost of doing business with us.
EASTABROOK: While the two exchanges have dominated U.S. futures trading for more than 100 years, Swiss-German owned Urex began challenging them on their own turf a few years ago. Analysts think more competition could be coming from U.S. equities exchanges.
PATRICK O`SHAUGHNESSY, EXCHANGE ANALYST, MORNINGSTAR: The futures business does tend to have more attractive features than cash equities. And the growth trajectory going forward is probably a little bit stronger than futures, so some of the stock exchanges have expressed an interest in getting into that business.
EASTABROOK: The exchanges say they will continue to operate separately until the merger is complete. That probably won`t happen until the middle of next year. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
