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CME, NYMEX expect deal to close in a week

A multibillion-dollar deal to will combine the Chicago Mercantile Exchange and the Chicago Board of Trade with the New York Mercantile Exchange will likely close next week.
/ Source: The Associated Press

A multibillion-dollar deal to will combine the Chicago Mercantile Exchange and the Chicago Board of Trade with the New York Mercantile Exchange will likely close next week.

Shareholders and members of CME Group Inc., parent company of the two Chicago exchanges, and Nymex Holdings Inc. are scheduled to vote on the agreement Monday. If approved, the companies will become CMEG NY Inc., a wholly-owned subsidiary of CME Group on Aug. 22.

CME Group has faced a backlash from Nymex members after a recent securities filing suggested its $750,000 payment for each seat would be classified as income, which has a more unfavorable tax rate compared with capital gains.

CME is already boosted the money it will pay for seats and made other advances to make sure the deal goes through.

The cash-and-stock buyout was valued at $9.4 billion when it was announced early this year. CME Group will pay $3.4 billion in cash and about $6 billion in stock for Nymex Holdings.

The combined company will continue to operate electronic and open-outcry trading platforms in both New York and Chicago, as long as the New York trading floor meets certain revenue and profit requirements, executives have said.

CME Group Executive Chairman Terry Duffy will remain in his post along with CME Group Chief Executive Officer Craig Donohue. CME Group will add three Nymex directors to its board.

Wall Street has heavily favored the deal, believing it will give CME a foothold into the fast-growing market for energy derivatives and access to new geographic areas.

CME, the world's largest financial exchange company, hosts trading of contracts that derive their value from an underlying commodity or event for things such as gold, oil and wheat. Investors use these contracts to shelter their investment portfolios from swings in interest rates or fluctuations in the stock market.

The New York Mercantile Exchange specializes in trading of energy and metals contracts, and has already partnered with CME to list some contracts on CME's electronic exchange.

The two companies said the deal will save them about $60 million before taxes, half of which will come from the reduction in administrative costs and the other half from technology savings.

There has been a rapid consolidation of exchanges worldwide in an attempt to lower costs and draw in billions in new investments.

The Nasdaq OMX Group Inc., formerly known as the Nasdaq Stock Market Inc., was formed last year in a complex deal in which Nasdaq bought OMX AB, a group of Nordic exchanges, while selling a 20 percent stake in the combined company to Borse Dubai, a state-owned exchange based in the United Arab Emirates.

The company also purchased the Boston and Philadelphia Stock Exchanges.

The former Chicago Mercantile Exchange Holdings Inc. bought CBOT Holdings Inc. for $11.9 billion less than a year before the Nymex deal was announced.