CBOT's best merger partner may be nearby - Vitale
July 24, 2002 05:00 PM ET Email this article Printer friendly version
By Melissa Goldfine
CHICAGO, July 24 (Reuters) - Consolidation among derivatives exchanges is inevitable in the United States, and the best place for the Chicago Board of Trade to look for partners may be right in its own backyard, CBOT Chief Executive David Vitale said in an interview with Reuters on Wednesday.
Talk has swirled for years that the three Chicago exchanges, the CBOT, Chicago Mercantile Exchange and Chicago Board Options Exchange, could join forces to form a derivatives powerhouse, but local rivalries have slowed cooperation.
"Almost anybody in the Chicagoland area would say it would be better if the Chicago exchanges merged with the Chicago exchanges because it creates a bigger exchange here...and it preserves headquarters," Vitale said. "If there were any kind of preferences for merging, would it be Chicago? Yeah."
Vitale's comments were the latest public signs of a warming in the relations among the three Chicago exchanges, which have often bickered in the past.
In April, new CME Chairman Terry Duffy said the time was right for consolidation among the Chicago futures exchanges, adding that he considers dealmaking to be part of his job.
The Chicago exchanges once dominated world derivatives trading but have been overtaken in recent years by all-electronic Eurex, a combination of the Swiss stock exchange and Deutsche Boerse DB1Gn.DE .
A second European derivatives trading behemoth was created last year when pan-European Euronext ENXT.PA , which includes the Brussels, Amsterdam, Paris and Lisbon exchanges, combined with the London International Financial Futures and Options Exchange to form Euronext-LIFFE.
Now that the wave of consolidation is over in Europe, exchanges there could set their sights on the United States, Vitale said.
"(Consolidation) is coming," Vitale said. "Now that Europe is done, they'll come to the United States and force more of it here."
Two years ago, the No. 3 CBOT and Eurex formed a/c/e, a joint electronic trading platform using Eurex's technology, and for a brief time there was talk of a possible merger between the exchanges. Disagreements about the platform ensued soon after the two teamed up, and the exchanges announced earlier this month they had settled their disputes.
The new agreement shortened the life of the contract to 2003, instead of as late as 2008. In addition, the resolution allows the two exchanges to form new partnerships prior to the expiration of the alliance, as long as the partners do not offer products that compete directly with products listed on the CBOT or Eurex.
TEAMING UP THROUGH TECHNOLOGY?
One way the CBOT might be able to promote cooperation with the other Chicago exchanges would be in electronic trading.
Sometime during the next month, Vitale said the CBOT will request proposals from potential electronic-platform providers to supply the technology after its current agreement ends. Eurex is certain to be one of the bidders, and the CBOT also plans to ask for proposals from the CME and CBOE. Other potential candidates include LIFFE and Stockholm bourse operator OM OM.ST , he said.
The three Chicago exchanges already are working together on their OneChicago Futures Exchange, an alliance to trade single-stock futures. The exchanges received approval from the Securities and Exchange Commission on Wednesday to offer the product. The head of the Commodity Futures Trading Commission, which shares regulatory oversight of single-stock futures with the SEC, has said trading could start as soon as September.
"As we learn to work with each other in something like OneChicago, maybe we're creating a platform of understanding and experience that makes it a little bit easier for these kinds of things (consolidation) to happen," Vitale said. "OneChicago has been a great learning experience. We've learned a lot about each other and how to work together."
The world's No. 2 futures exchange, the CME, has transformed from a member-owned institution into a for-profit company, and last month it became the first major U.S. financial exchange to seek approval from federal regulators to launch an initial public offering.
But Vitale said the CBOT's transformation into a for-profit company will be on hold until the exchange works out a lawsuit with minority members about equity distribution. The CBOT chief said even if the exchange does go for-profit, it may not offer its shares to the public.
"An IPO was never on the agenda," he said.
Vitale does not see the exchange's status as a privately held company as a deterrent to consolidation, as the exchange now has fewer "constituencies" to complicate the potential merger process. |
