CME Response To ICE/NYX

Posted by Jeff Carter
on December 21st, 2012

What would I do if I were $CME and saw $ICE buy $NYX? There are three responses.

First is do nothing. Costs you nothing, and allows the firm to pursue its existing strategy. While doing nothing, CME might counsel regulators as to why this is a bad tie up. Delaying the purchase through close examination of the regulations and competitive issues surrounding it might be a good strategy. CME was delayed twice by regulators when it purchased CBOT and NYMEX. Delay eats operating capital.

Second, bid. It’s a market and CME Chairman Terry Duffy knows a lot more than any executive sitting at the table about operating in a market. Construct an appealing hostile bid for $NYX. Similar to what ICE did with CBOT. Unfortunately, regulators probably wouldn’t approve a CME/NYX tie up. The NYC banks would be against it. But, shareholders are capitalists and if CME forced ICE to pay more, they’d appreciate the push. There are all kinds of permutations that one could think of when it came to CME buying and selling off pieces of the NYX. To be honest, for HFT traders, a tie up between those two exchanges would be best.

Third, look to buy something. The two most probably candidates are $NDAQ or $CBOE. However, then they invite the scrutiny of the SEC and the SEC is living in the past. The acquisition of either of those two exchanges doesn’t feel accretive to shareholders-especially owning a stock exchange. CBOE is a possible target, but only because they have a decent product line with decent margins. There is some cross pollination effects between CBOE and CME Group‘s options markets. But, it’s not a slam dunk.

I think if I were CME, my first move would be to offer NYX a combination of cash and stock valued at over $9B. Maybe $9.5B. Make ICE ante up and call.

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