geekgrrl

Sat, 24 Mar 2007 15:20:22 -0600

thanks for shedding more light on the details. ICE's bid is obviously an improvement on the surface, but i knew there had to be more to the whole relationship. what's funny to me is the Merc is leaning so heavy on Chicago ties and the hometown advantage, when ultimately, money and business don't care a whit about that sentimental fluff.

Casual Observer

Sat, 24 Mar 2007 14:45:01 -0600

This merger, for those who are interested, really boils down to two things: exercise rights on the CBOE and clearing arrangements. CBOT traders have historically enjoyed the right to trade on the Chicago Board Options Exchange without paying for a seat on that exchange, because of the CBOT's relationship with the CBOE. Now, the CBOE plans to do away with those rights if the CME buys out the CBOT. It has not decided whether it will do the same if ICE and the CBOT merge, however, ICE is allowing the CBOT to remain the parent company under its proposal, thereby hinding that CBOT members will retain their trading rights on the CBOE. The second point of contention for these rival bidders is the clearing of trades. CME already clears (financial settlement of trades) all of the CBOT's trades and is in a contractual agreement to do so until 2009. Since have already implemented this clearing arrangement, they argue that it will be easier for the two to merge and go on with business as usual. On the other hand, ICE does not have the scale of clearing operations that the CME does. In fact, it currently clears less than one-tenth of the trades that are cleared by the Merc. However, ICE's proponents argue that they will have until 2009 to build out a scalable clearing infrastructure to meet the demands of the CBOT. At this point, I would peg the odds at 70% CME, 30% ICE. The CME may be the CBOT's hometown brethren, but the directors of the CBOT have a fiduciary responsibility to their shareholders to recommend the best possible deal. So, it is a wait and see game. The final result will be very interesting.

Chicagoist: CBOT + CME = No Longer BFF?

geekgrrl

Casual Observer