February 23, 2011 / 7:15 AM / 8 years ago

CBOE eyeing strategy in exchange merger dash

CHICAGO/NEW YORK (Reuters) - The Chicago Board Options Exchange for the first time opened the door to a possible sale, becoming the latest market operator to respond to a global takeover frenzy that some say is just beginning.

Pedestrians walk past the New York Stock Exchange, February 15, 2011. REUTERS/Joshua Lott

Chief Executive William Brodsky said CBOE Holdings Inc’s focus on equity derivatives has kept it competitive against larger rivals, but remaining a niche player “may not be the only way that we will succeed,” he told Reuters in an interview on Wednesday.

Brodsky’s comments, in an interview in his office above the trading floor, appeared to leave the door open to joining the consolidation wave that has rocked the industry, though he did not suggest any particular deal was under consideration.

Nearly two weeks after London Stock Exchange bid for Canada’s TMX Group, and Germany’s Deutsche Boerse’s takeover plans for NYSE Euronext were revealed, the strategic maneuvering is in full throttle.

Nasdaq OMX Group Inc could also jump into the fray to avoid being left behind as a spate of tie-ups figure to revamp today’s sharply competitive and increasingly interconnected exchange landscape.

The CBOE is the largest of the nine U.S. options venues, its parent having gone public last year to free it up to possibly do deals. Long seen as a takeover target, the company has since stressed its focus on remaining independent.

At a February 8 board meeting, a day before news of the most recent mega-mergers broke, CBOE management told directors that it would not be opposed to a transaction, though no specific possibilities were outlined, according to a source with direct knowledge of the matter.

In the last couple of weeks, the source said, many emailed and verbal messages have been exchanged internally on how CBOE will respond to the rash of merger plans. Any change to strategy is expected to help drive the company’s agenda in the weeks and months ahead, the source said.

CBOE shares jumped 5.8 percent after the Reuters report, underscoring the sensitivity and volatility of exchange shares in recent weeks. CBOE stock closed up 1.6 percent at $26.39 on Wednesday.

Nasdaq’s shares closed flat, a day after a source said it could launch a rival bid for archrival NYSE Euronext.

Nasdaq’s other options include tying up with futures-oriented IntercontinentalExchange Inc or CME Group Inc in order to wrest NYSE from its planned $10.2 billion takeover by Deutsche Boerse, the source familiar with the matter said.


Putting even more cost and technology pressure on the traditional bourses, BATS Global Markets said last week that it had agreed to snap up fellow privately held stock exchange operator Chi-X Europe.

The traditionals have responded by reviving a consolidation wave that last crested nearly five years ago, with the aim of diversifying into more profitable derivatives businesses.

The latest wave was kicked off by a $7.9-billion bid by Singapore Exchange for the Australia stock exchange operator ASX Ltd late last year. The previous flurry ended with the financial crisis.

LSE Chief Executive Xavier Rolet said consolidation would only continue.

“In five years there’ll be three, four international exchange groups with global distribution capabilities,” Rolet told Reuters in an interview on Wednesday.

“The start of the second generation of consolidation in the exchange world is just that ... We’re just getting started, guys.”

But regulatory and political questions have cast doubt on the spate of deals, which span four continents, several countries and most asset classes.

The Hessian Ministry of Economics, which controls Deutsche Boerse’s operating license, said it will use adequate means to defend Frankfurt’s interests as a financial center in the proposed merger deal with NYSE Euronext.

That deal, the biggest of those in play, has drawn concerns from New York to Paris to Frankfurt over whether it would ultimately benefit local economic interests.

In Canada, the Ontario Securities Commission said on Wednesday it will assess whether the LSE’s proposed takeover of the Toronto Stock Exchange parent is in “the public interest” — though that concept remains difficult to define.

Back in London, Rolet said he saw some good support in Canada for the deal but expected “some tense moments.”

Asia, meanwhile, runs the risk of being left behind, given its tough regulatory regimes, cumbersome ownership structures and protectionist-minded governments.

Thailand’s market regulator said that most of South East Asia’s stock exchanges are several years away from getting involved in global bourse consolidation.

Additional reporting by Paritosh Bansal in New York, Luke Jeffs in London, Rachel Armstrong in Singapore; Writing by Anshuman Daga and Alexander Smith; Editing by Neil Fullick, Jon Loades-Carter, Jane Merriman, Phil Berlowitz

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