As exchanges around the world consider mergers, two of the most recognizable names in the financial industry — the Dow Jones Industrial Average and the S&P 500 — were recently brought together in a joint venture between CME Group and McGraw-Hill. The combined entity, the S&P/Dow Jones Indices, expects revenues of $400 million a year.
CME Group previously had formed a joint venture with Dow Jones whereby it became the 90% owner of the Dow Jones indexes. CME Group will own 24.4% of the venture with McGraw-Hill through its affiliates; Dow Jones will own 2.6% and McGraw-Hill will own 73%.
According to Scot Warren, managing director of equity index products at CME Group, CME and S&P already had a 30-plus-year business relationship and the venture is targeted at future growth. "We started talking to them about our relationship and how we can grow and continue to see success for both parties. We came to the conclusion that there were opportunities to combine our index services assets," he says. "Primarily, it gives scale as well as brand and client diversification."
Larry Tabb, founder and CEO of TABB Group, says the venture makes a lot of sense. "It solidifies the relationship between CME and the indexes, so they can’t take the business elsewhere," he says. Tabb adds that he would be concerned if he were at the Chicago Board Options Exchange (CBOE), which offers options on the S&P 500.
CBOE released a note of congratulations after the announcement. "There’s a synergy between all of our products. We’re trading the S&P options; CME is trading the S&P futures; S&P is licensing our VIX," a CBOE spokesman said. "So we benefit from the S&P products, and S&P benefits from our VIX product. We believe all the parties involved understand this beneficial relationship." CBOE’s current exclusive license with S&P expires in November 2018, but the exchange has rights to the S&P options through November 2022.