U.S. News

Justice Department Clears Merger of CBOT and CME


The U.S. Department of Justice on Monday gave the regulatory green light for the two largest U.S. futures exchanges to merge, saying the proposed combination probably would not hurt competition.

The planned deal by Chicago Mercantile Exchange Holdings to acquire CBOT Holdings next goes to votes by CME shareholders and CBOT members and shareholders on July 9.

Investors in CBOT, the No. 2 U.S. futures exchange, still have to consider a higher, unsolicited bid made by Atlanta's IntercontinentalExchange in March.

"Today's announcement allows for the marketplace to have a clear view of our merger prospects," said CME Executive Chairman Terry Duffy. 

The proposed combination would create the world's largest derivatives exchange and had been subjected to an extended review by the DOJ because of anti-trust concerns.

CBOT's board has endorsed CME's offer, the terms of which were sweetened in May from the original deal announced in October.

The board cited the lower execution risk involved in pairing with CME, CBOT's long-time rival and, in recent years, close collaborator, compared with the comparatively untested ICE.

Officials with ICE had no immediate comment.
Competition With OTC Markets

DOJ said it concluded that CBOT and CME "seldom compete head to head" and that a combined exchange would not result in a loss of innovation.

"The two principal impetuses for innovation have been, and will continue to be, the prospect of winning business from the over-the-counter market and the potential to offer products that the OTC community can use to hedge the risk associated with its activities," DOJ said.

The DOJ's decision "was fairly predictable," said Octavio Marenzi, CEO of Celent, a Boston-based financial research and consulting firm. "While the Antitrust Division is correct to point out that CBOT and CME rarely compete with each other, it is a stretch to say that they are taking
market share away from the OTC markets," he said.

The proposed deal had raised antitrust concerns, including a warning by the Futures Industry Association, a trade group representing U.S. futures brokers.

A combined CME and CBOT would have more than 85% of the U.S. futures and options on futures market, including close to 100% in the interest rate and stock index segments.

The FIA has said the deal would lessen competition among U.S. futures exchanges, and raise even higher the barriers to entry for new competitors.

Shares of Chicago Mercantile Exchange, which closed higher Monday, rose slightly more than a further 1% in late trading. CBOT also closed higher but fell 1.5% in afterhours trading. ICE dropped over 2% in extended trading after closing stronger.