Hindsight Is 20/20 - A Look Back At The Battle For The CBOT
Hindsight Is 20/20 - The Battle For The CBOT
Q: Hindsight Is 20/20 - What Are Your Initial Reactions To The ICE/CME Battle For The CBOT?
- "If youíre going to bet on the CME or ICE, then you have to understand the regulatory environment at the DOJ. Unfortunately, that is a little bit outside of our traditional analystís purview," said Richard Repetto, Partner, Sandler O'Neill & Partners. "However, although I'm impressed with ICE's offer, I still think the CME is the front runner for the deal. ICE will need to equalize the CME/CBOT common clearing link. That is a significant benefit that will be hard for ICE to overcome.î
- ìThe market has a strong appetite to provide debt for the CBOT," Christoper Allen, VP, Banc of America Securities. "And equity investors have a strong belief that the CBOT & CME should be together, so they should have no problem coming up with the capital for a counter-offer.î
Q: Why Do You Support The CME Proposal?
- ìThe merger between the CME and CBOT will make bid/offer spreads tighter for the customer," said Chuck McElveen, the CEO of Kingstree. "The merger will create cost savings for market makers that will allow them to tighten spreads. There is a great deal of concern about fees these days, but our trading profitability has very little to do with how much the exchange charges us per contract. Instead, it has far more to do with how tight the spreads are.ì
Bob Jordan, President, - ìI think combining the entities will yield margin savings down the road.ì
- ìOur decision to support the CME/CBOT merger came from the market making/trading side of our membership." said Tom Erickson, Vice Chairman, CMC & Former CFTC Commissioner "Competition does not come solely from the U.S. market anymore, so this merger will help to compete against foreign firms. At the same time, it will also help to maintain deep liquidity pools."
Q: WILL PRODUCT INNOVATION SUFFER IF A CBOT/CME MERGER GOES THROUGH?
- "Management has shareholders now, so they have to answer to analysts and shareholder expectations, but they already have to do that, so that is hardly a reason.
- ìThe concentration of liquidity is inevitable in this environment," said Dr. Craig Pirrong, Professor of Finance and Energy Markets at the University of Houston. "Splitting clearing and execution can create multiple problems. Those two functions are inter-related and should be handled together. When two competing organizations price the same products, there can be a ìdouble markup effectî where the firms price in their costs twice.î
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