The Chicago Mercantile Exchange's victory in the take-over battle for CBOT Holdings Inc may set off a new round of courtship as rival options and futures exchanges seek partners.
Shareholders of CME and CBOT voted on Monday to merge, creating the world's largest exchange specialising in derivatives, the lucrative financial contracts that allow investors to bet on anything from stock prices to the weather. The presence of such a behemoth is likely to spur energy exchange IntercontinentalExchange Inc, which lost a months-long battle for CBOT, to acquire a competitor or become a take-over target to remain competitive, analysts said.
"For ICE to remain competitive now, they will have to grow in mass," said Mark Williams, an energy markets expert and professor of finance at Boston University. "And there are very few brides left that would provide the mass ICE needs."
The new entity, to be called CME Group, will control more than 85 percent of US options and futures trading volume. Exchanges around the world are consolidating because sophisticated electronic trading systems now allow them to offer global markets for trading in equities, options, futures and other products.
Williams said consolidation is the only way to go because individual exchanges cannot independently grow fast enough to provide investors with all the sophisticated trading technologies and products in the market. "The playing field (for exchanges) keeps changing because the competition keeps changing who they are," he said.
WHO WILL ICE ASK TO DANCE?Some analysts said the New York Mercantile Exchange, which trades benchmark crude oil and natural gas futures, is a good fit for Atlanta-based ICE, which built its reputation on over-the-counter energy contracts.
Nymex currently has a market value of $11.6 billion, while ICE is worth $11 billion. In January, ICE expanded into soft commodity trading by buying the New York Board of Trade. Analysts have said that, for ICE to grow into a global exchange, it needs to develop a multi-product portfolio.
"Nymex is not particularly cheap right now and part of the reason is that its investors have been expecting someone to come in and make an offer," said Morningstar Inc analyst Patrick O'Shaughnessy. That "someone" could be ICE or even NYSE Euronext, whose Chief Executive, John Thain, has said the transatlantic exchange is looking at acquisitions to drive its US futures business.