THE world's biggest financial exchange was born on Monday when shareholders of the Chicago Board of Trade and Chicago Mercantile Exchange voted to merge.
The friendly CME bid, worth an estimated $US11 billion ($12.8 billion), was accepted by an overwhelming majority of CBOT shareholders.
"It's the biggest trade in the history of Chicago and it's one of the few trades where both sides win," CBOT chairman Charles Carey said.
CBOT shareholders had been hit with a fierce takeover campaign by IntercontinentalExchange (ICE), which operates the New York Board of Trade and London's International Petroleum Exchange.
ICE failed to boost its offer after CME sweetened its bid for the third time on Friday, allowing CBOT shareholders to own some 36 per cent of the combined company, up from 35 per cent in the previous agreement.
That extra boost was enough to convince many of the remaining holdouts at the CBOT, said Jeremy Israelov, a wheat trader who has been a member for 17 years.
"It went from a losing proposition to a winning proposition," he said ahead of the vote.
The transaction is expected to be completed in the coming days, but it would be 12 to 18 months before the two exchanges were fully integrated, officials said.
The CME will move into CBOT's art deco landmark building in the second quarter of next year.
It will be a busy building: average daily volume for the two exchanges was nearly 12 million trades a day last month.
While the CME has twice the volume, its leaders acknowledged on Monday that the CBOT's brand was a valuable one and promised to maintain it.
"Nobody's going to tear the name off the Chicago Board of Trade [building]," said CME chairman Terry Duffy.
The combined company will be called CME Group Inc, a CME/Chicago Board of Trade Company.
Its market value will be some $US30 billion, or about 50 per cent bigger than its closest rival, NYSE Euronext, formed by the merger of the New York Stock Exchange and the pan-European bourse.
The Chicago market will be "the world's largest and most diverse exchange, providing products in all major benchmark asset classes," the companies said.
In a statement after the vote, ICE chairman Jeffrey Sprecher said his company would pursue other avenues.
"For CBOT stockholders, ICE's involvement has created nearly $US3 billlion in additional value through our willingness to recognise the true worth of your company," he said.
"For ICE stockholders, we have shown our ability to leverage our position as one of the fastest growing, most global and most technologically sophisticated exchanges in the world."
CME executives said they had no interest in expanding the group in the near future.
"This is the biggest transaction in the history of the exchange business," Mr Duffy said at a press conference. "We will be very focused on this transaction and we will not look past it."
The hard-fought battle came amid a growing role for futures and derivatives in global financial markets.
These exchanges, which help spread risk in case of a sharp drop in prices of assets, allow investors to trade or bet on things as varied as interest rates, the price of real estate or even the level of snowfall. Such trading grew 24 per cent in the first quarter of 2007 to an eye-popping $US533 trillion globally.
The two exchanges have launched 137 new derivative offerings, ranging from bets on the weather, ethanol prices or credit defaults, in the past seven years.
source:www.smh.com.au
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