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CME Group to acquire CBOE for $16 billion

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The Chicago Mercantile Exchange (CME) Group has reportedly proposed to acquire its rival Chicago Options Exchange (CBOE) for approximately $16 billion. The two major Chicago futures and options exchanges are reportedly merging.

CME is the world’s largest futures market, and CBOE owns the volatility index (VIX), also known as the “Wall Street fear index.”

CME’s acquisition of CBOE will be the largest merger in the company’s history. In 2008, CME acquired the New York Mercantile Exchange (NYMEX) for $7.9 billion.

According to three sources quoted by the Financial Times (FT), CME offered to acquire CBOE for $16 billion in a full exchange merger on the 18th (local time).

Sources indicate that CME has proposed a merger and acquisition (M&A) method in which 0.75 shares of Treasury stock are given up for each share of CBOE stock. CBOE stock is set at $150, about 20 percent higher than last weekend’s closing price of $123.

If the two companies merge, they will effectively control the global derivatives market.

As a result, CME can expand its futures and options operations into commodities such as oil, grains, and interest rates.

CBOE, which spun off from CME in 1973, owns a VIX index named the Wall Street Index, an equity options exchange, and three stock exchanges. It is also responsible for equity trading and clearing activities in Europe.

As a result of the Covid-19 outbreak, the equity options market, the mainstay of the CME and CBOE, grew rapidly after the stock market collapsed last year.

In the wake of the market collapse and subsequent recovery, the volume of equity options trading has also increased rapidly.

The expansion of the options market has also been influenced by Robinhood, a free online stock trading platform that advocates “stock trading democracy.”

Tesla, Apple, and AMD, the makers of semiconductors, are examples of technology companies where options trading volume is growing rapidly.

In July, OCC, a major U.S. options clearinghouse, closed approximately 800 million options contracts, up 29% from the same month last year. The number is the highest ever.

A 37 million trades per day average was also up 42% from the same month last year.

Another wind of M&A is expected to blow through the global exchange industry if the CME is successful in acquiring the CBOE.

The number of exchanges is growing, and their influence over financial transaction data and information markets is expanding.

These smaller exchanges are also becoming increasingly dominant in the financial market because of their grip on data.

ICE (Intercontinental Exchange), which owns CME and New York Stock Exchange (NYSE), London Stock Exchange (LSE) Group, Deutsche Börse, and Nasdaq, generated $35 billion in revenue in 2019 through these 5 companies.

The major exchanges are intensifying their efforts to expand their data businesses.

Refinitiv, a provider of transaction information, was purchased by the LSE Group for $27 billion, and Elimay was acquired by the ICE for $11 billion.

Meanwhile, CME denied reports that it had proposed to acquire CBOE for about $16 billion.

For MetaNews.

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Jonathan Hobbs

Jonathan Hobbs is an Australian investor and author that trades on a variety of asset classes, including currencies, equities, and commodities. Jonathan’s experience as a macro trader leverages his unique writing style to combine important elements, such as technical analysis and news. The other elements that he brings into his unique writing styles are foundation analysis aimed at rational equilibrium values, evaluating the sizes and motivations of buyers and sellers, as well as identifying the needs of the buyers and sellers in the individual markets. Jonathan is committed to quality writing for new traders as well as veterans.

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