Today, Chicago. Tomorrow, the world?
Even before the Chicago Mercantile Exchange’s $11.9 billion purchase of the crosstown Board of Trade won final approval from shareholders, industry experts were speculating on possible acquisitions ahead for the new juggernaut of the financial exchange industry.
The targets, analysts suggest, could include other large exchanges from New York to London and beyond.
“The fact that they’re talking so much about being global, I think that means something,” Michael Henry, an exchange expert for consulting firm Accenture Ltd., said from Paris.
CME Group Inc., the company being created from Chicago Mercantile Exchange Holdings Inc.’s acquisition of CBOT Holdings Inc., should have plenty of resources to go after another company after completing the integration that the two exchanges began planning last October.
The green light to go ahead with the combination came Monday from shareholders of both parent companies in votes that reflected the sweetening of the Merc’s bid three days earlier.
IntercontinentalExchange Inc. effectively conceded the four-month bidding contest for the Board of Trade by not coming back with a final offer.
That left the Merc, the No. 1 futures markets by volume, and CBOT, which is ranked third, free to pair up after more than a century of competition against one another. The seemingly unlikely union ultimately made sense in an era of increasing consolidation and rapid growth in electronic trading.
“The trend of the industry is you have to get bigger or get out,” said Harlan Krumpfes, an agriculture trader at the Board of Trade since 1975, after casting his vote in favor of the Merc’s proposal.
CME Group likely will be joined by numerous other players exploring new exchange acquisitions.
Exchanges have been scooping up rivals at a frantic pace in order to remain nimble in an increasingly competitive global field. Just this year, ICE bought the New York Board of Trade, the New York Stock Exchange acquired Euronext NV, and Germany’s Deutsche Borse agreed to buy the International Securities Exchange Inc.
The all-Chicago exchange still won’t have a strong presence in energy futures and doesn’t have stocks, so those could be on its wish list, according to Henry.
“I think the global exchange landscape is going to be dominated by companies that have a larger product range than they have. So I think a reasonable move might be to buy a big European exchange,” he said, suggesting the London Stock Exchange as a potential target.
Chicago-based analyst Patrick O’Shaughnessy of Morningstar agreed that an international transaction might make sense for CME. So might a tie-up with the New York Mercantile Exchange, since the Merc already provides an electronic trading platform for Nymex products.
He noted that there has yet to be a deal in which a futures exchange buys a stock exchange.
“I don’t think more mergers are inevitable, but I think that they’re logical,” O’Shaughnessy said.
Executives of the combined company, who used the word “global” multiple times in comments after Monday’s votes, haven’t ruled out anything.
“Starting on Day One, our combined company will be ready to compete in the global environment well-armed for growth and innovation,” said Bernard Dan, CBOT president and chief executive.
Pairing the Merc and Board of Trade will create the world’s largest one-stop futures and options market for everything from interest rates to pork bellies, and make it the world’s No. 1 exchange of any kind by market value, outpacing Deutsche Borse and NYSE Euronext.
Traders and shareholders will pocket huge amounts from the deal, softening any blow from the end of 159 years of independence for the Board of Trade. There are other consolations, too: The older exchange’s Art Deco headquarters will house the combined firm’s trading operations, and CME Group will be formally called “a Chicago Board of Trade company.”
“It’s a happy day, it’s a moving-forward day — it’s kind of an inevitable day,” said Jerome Israelov, 43, a wheat trader at the Board of Trade. “It’s just a logical move forward for the industry.”