Streetwise Professor

October 13, 2007

CME+NYMEX Coming to Pass?

Filed under: Derivatives,Energy,Exchanges — The Professor @ 8:37 am

Crain’s Chicago Business reports that several analysts are touting a potential CME-NYMEX merger. Crain’s cautions that it has no indications that talks are underway, and both exchanges declined comment. Nonetheless, it is clear that the compelling economics of the transaction, which I have been pointing out since early-2006, are becoming widely understood.

Interestingly, NYMEX’s stock price has been relatively flat in recent months, while CME’s has appreciated dramatically to all time highs–up $40/share since early August, and rallying over $80/share since late September after a sell-off earlier in the month. The CME’s warchest is therefore bulging, and CME is more than able to swallow NYMEX. Antitrust considerations would most likely stymie CME’s nemesis in the CBT merger–ICE–in its pursuit of NYMEX. Thus, CME’s most likely competition would be NYSE/Euronext, and Thain is desperate to get into derivatives, but I still give CME the leg up due to the fact that NYMEX contracts already trade on CME’s Globex.

The article also suggests that CME is looking abroad–to exchanges like Brazil’s BM&F. Given CME’s financial heft and management, in my opinion the exchange can do both. So, my guess is that in early ’08 we’ll see CME make a bid for NYMEX, and perhaps BM&F as well. NYMEX is the prize, though, and I expect the CME to focus there first.

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