Magazine article Modern Trader

CME+CBOT = Huge

Magazine article Modern Trader

CME+CBOT = Huge

Article excerpt

News, trends and insights for traders

EVE OF CONSTRUCTION

Depending of your perspective, the announced merger of the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (CBOT) was either a shock or a logical, if tardy, evolution. It certainly had been talked about, and exchange leaders had expressed frustration about previous failed attempts to merge.

"It was a long time coming," says Leo Melamed, CME chairman emeritus, and the man who perhaps has worked longest, if not hardest, at pushing Chicago's two futures exchanges together. Melamed credits the hard work and friendship between current exchange chairmen Terry Duffy (CME) and Charlie Carey (CBOT) for finally getting it done. "This fulfilled a destiny that will solidify Chicago as the capital of derivatives and risk management." The combined volumes of the exchanges would have given them a 35% market share of futures global business and 19% of total global futures and options business through August 2006.

Les Rosenthal, an industry veteran and former CBOT chairman who participated in prior negotiations, also credits that friendship. Rosenthal says the deal turns the CBOT's biggest liability, the trading floor built in 1998, into an asset. "The only thing they [could] do is turn it into the largest McDonalds in the downtown area. But now that they have the CME, or the CME has them, there is a synergy there."

The new entity will be CME Group Inc., the largest derivatives exchange in the world, valued at $25 billion, with an average daily trading volume near 9 million contracts per day and representing $4.2 trillion in notional value. The deal is expected to close in mid 2007. CME stockholders will own 69% of the combined company and CBOT shareholders will own 31%.

"Growth in the global derivatives industry is accelerating and new competitors are emerging in exchange, over-the-counter and other unregulated markets," said Craig Donohue, CME chief executive officer. …

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