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Next Week’s IPO to Watch

The timing could not be better, Cramer said Wednesday, for the Chicago Board Options Exchange to come public.

The US’s largest options exchange, which will trader under symbol CBOE, plans to hold its IPO early next week just as the final negotiations on financial regulatory reform begin in Congress, on June 15. A vote on the bill could happen in the last days of June or the first two days of July. While no one yet knows the fine print of the legislation, we do know there’s a huge push for transparency, specifically by moving financial derivatives onto exchanges.

Admittedly, the exchanges won’t be the biggest beneficiaries of this bill, Cramer said. No, the clearing houses stand to gain the most, which is why he has recommended Intercontinental Exchange ICE, CME Group and NYSE-Euronext . (Click here for Cramer’s full report on those stocks.) But the Mad Money host is confident that the increased trading on exchanges eventually will benefit all exchanges, including CBOE, even if the impact on earnings takes some time.

Even without FinReg, the exchange business is doing well, Cramer said. The volatility we’ve seen recently has boosted volumes, and options trading has been expanding even faster than the rest, growing at a 25% compound annual rate for the past five years. Cash equities and futures have grown at just 10% and 15%, respectively, over the same time period. That’s another reason to like CBOE.

None of this makes the stock’s IPO a definite buy, though. Cramer may think that a strong performance will set the tone for all publicly traded exchanges – if the offering price holds, it’ll be a “major positive” for these exchanges’ valuations, and that in turn would boost the market – but this deal is expensive. And with big institutions elbowing in on the action, it may be hard for retail investors to get their share.

But – if you can buy some at $28, the midpoint of CBOE’s expected $27-$29 range, the stock would trade at 17 times next year’s earnings, similar to the multiples that CME and ICE are getting right now. That’s a good level.

“Pay no more than $28,” Cramer said. “Otherwise just let it go.”

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