CME, CBOT to merge

The Chicago Mercantile Exchange is to merge with the Chicago Board of Trade in a move the exchanges say is “expected to transform global derivatives markets.”

The 2007 merger of the two largest futures exchanges in the US will create a single entity named the CME Group, whose corporate headquarters will remain in Chicago.

The merged exchange hopes to be the leading market for trade in all major asset classes and will give wider access to benchmark exchange-traded derivatives based on US interest rate yield curves, equity indexes, foreign exchange, agricultural and industrial commodities, energy and alternative investment products such as weather and real estate.

The merger between CME and CBOT will create one of the world’s most liquid marketplaces, with average daily trading volume approaching 9 million contracts per day, representing approximately $4.2 trillion in notional value. It will be the world’s leading derivatives clearing facility based on volume.

Earlier this year CME announced a deal with Nymex making it the exclusive electronic trading services provider for Nymex’s energy futures and options contracts through 2016. The agreement encompassed side-by-side trading of Nymex standard-sized and Nymex “miNY” energy futures contracts for crude oil, natural gas, heating oil and gasoline with Nymex’s floor-based products during open outcry trading hours and when the Nymex trading floor is closed.

Once completed the merger will see Terrence Duffy, currently chairman of CME, become chairman of the combined organization. Current CBOT chairman Charles Carey will become vice-chairman of the combined organization while Craig Donohue, chief executive officer of CME, will become chief executive officer of the combined organization.

The merger is expected to shave off $125 million annually in costs by the end of the second full year after closing, which is due mid 2007 pending approval from regulators.

This merger follows on the heels of IntercontinentalExchange’s $1billion purchase of the New York Board of Trade which provides both entities with mutually beneficial access to each others’ trading and clearing technologies, a broadening of product choice and an overlap in customers.