ICE counteroffers for CBOT

July 29, 2014 02:34 PM
A look at the CME/ICE battle for CBOT

Note: August will be the 500th issue of Futures magazine dating back to its origin as Commodities magazine in February 1972. As part of that celebration we have digitized some important stories from the past and are presenting some of the major events that occurred in the industry over that time. Here we recount the battle for the Chicago Board of Trade. 

For three quarters of the 43 years Commodities/Futures has been aroundthe futures industry had been having it annual conference in Boca Raton, Florida. Over the years, industry firms would make splashy announcements taking advantage of the pool of media that usually attend the event, but more often than not the news was contrived. That was not the case in 2007 when the Intercontinental Exchange slipped a counter offer to the Chicago Mercantile Exchange’s definitive merger agreement with the Chicago Board of Trade under the hotel room door of CBOT Chairman Charley Carey. Carey reportedly was shaving at the time preparing for a media breakfast where he would discuss preparations for the nearly official link up with CME.

This was as hectic and exciting a story to cover as any in my time at Futures. In the days following the announcement all sides were scurrying. Terry Duffy held a meeting in front of CBOT members a few weeks later that ended with conentiouslty with Duffy refusing to answer any additional questions. His argument was that CME’s currency (stock) was more valuable than that of ICE and there was no need for CME to raise its bid.

This opened up a public relations opportunity for ICE and its innovative chairman Jeff Sprecher. Weeks later he would hold a meeting for CBOT members and vowed to stay until the last question was answered; which he did. He also rolled out a surprise agreement with the Chicago Board Options Exchange that sought to solve the contentious exercise rights issue between CBOT members and CBOE. By the end of the evening he made many converts. I ended up interviewing CBOT members on a 10:40 train back to the Southside of Chicago that night and several stated that they were with CME going into the evening but after exclaimed that CME would need to pay a premium to get their vote.

There was a lot of back and forth that spring and summer as ICE upped their bid and their stock price increased adding distance between the two offers.

ICE would even wrestle away listing rights to the valuable Russell 2000 Index from the CME in the process. If the ICE bid seemed like a flight of fancy and longshot when it was announced, as the hour of reckoning came down it was clearly credible and serious.

Ironically, at the time the CBOT leadership viewed the New York Stock Exchange as the one serious competitor to CME for its affection. The CME prevailed as it raised its bid to match ICE on the eve of a membership vote and with the CBOT’s largest shareholder announcing it would side with ICE if the CME didn’t.  Less than seven years later ICE would buy NYSE Euronext.

CME may have known all along it would have to raise its bid and simply waited for the last best moment to give ICE no room to counter, but it was an exciting high stakes game of poker.

The battle for CBOT increased the gravitas of ICE as a serious player in the exchange space and didn’t harm the bottom line of CBOT members either. To this day, CBOT members openly thank Sprecher, as they should as the battle added roughly $3 billion to their collective bottom line. 

CBOT gearing up for bidding war

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.