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Shareholders approve CBOT/CME merger

Agriculture.com Staff 07/10/2007 @ 9:07am

After 159 years of independence, the Chicago Board of Trade will combine with its long-time rival, the Chicago Mercantile Exchange.

On Monday, the shareholders of the CBOT voted to approve an $11.9 billion deal that could make the combined company the largest exchange in the world.

The vote followed four months of bidding between the CME and Atlanta-based IntercontinentalExchange (ICE).

There doesn't seem to be any immediate impact on producers that use the CBOT and/or CME for futures trading, analysts said.

Noel Blue, a CBOT floor trader and broker, said the marketplace will determine the future of the merger.

"Both candidates were appropriate, and going forward the customer will ultimately dictate how rapidly a transition from business that comes to the floor gets routed to the electronic platform," Blue said.

Blue added, "I do think a merge with ICE would have ended up making significantly more money for all involved in the long term, but I'm confident the CME will do its best now that they have member support.

Currently there is not enough liquidity in some of the deferred months and their spreads on the screen-based trade, but that will eventually change, Blue said.

Product integration of livestock and grain contracts as a by-product of the marriage of the two Chicago Futures Exchanges could open new doors for market participants in terms of intermarket spreading opportunities, analysts said.

"This will be an almost necessary strategy to hedge going forward, as relationships between the products continue to change. It is a fascinating time to be involved with agricultural trade," Blue said.

Roy Huckabay, Linn Group executive vice president, said the merger means very little to the producer.

"I think the merger facilitates the clearing and margin operations," Huckabay said. "I think the CBOT and CME will still operate independently. I don't see any crossing of contracts or anything of that nature."

Overall, the merger makes Chicago a very strong center for grain, meat, and financial futures trading, Huckabay said.

"In this day of merger mania, I see no negatives with this one,” Huckabay said. “There is talk this merger could threaten the future of the New York Stock Exchange, but we'll have to wait and see."

After 159 years of independence, the Chicago Board of Trade will combine with its long-time rival, the Chicago Mercantile Exchange.

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