Cbot

Introduction

Chicago Mercantile Exchange Holdings Inc. (CME) and CBOT Holdings, Inc. (CBOT) announced that they have signed a definitive agreement to merge the two organizations to create an extensive and diverse global derivatives exchange. The combined company will be named CME Group Inc., as part of CME/Chicago Board of Trade Company. The transaction is expected to close by mid-year 2007. This transaction will create a $25 billion derivatives powerhouse between the two leading Chicago future exchanges, and a liquid market with an average daily trading volume approaching 9 million contracts per day, representing approximately $4.2 trillion in notional value. The combination of the two companies will provide global access to a wide array of benchmark exchange-traded derivatives based on U.S. interest rate yield curve, equity indexes, foreign exchange, agricultural and industrial commodities, energy and alternative investment products such as weather and real estate. (CME, 2006) In order to fully understand this merger is imperative to discuss the positive and negative aspects of the new company created plus the possibilities of more consolidations or mergers in the near future.

Advantages and Disadvantages of the merger

The majority of the industry experts believed that a merger between CME and CBOT is part of the evolution that the industry is facing in order to meet the needs of customers around the world. This merger will create many advantages for the customers and companies involved on it. A few of the merger advantages for the new company created are:

* Accretive Transaction: The parties expect the transaction to become accretive to earnings within 12 to 18 months after the closing

* Synergy Opportunities: Anticipated pre-tax cost savings of more than $125 million annually, beginning in the second full year following the closing, driven primarily by technology, administrative and trading floor-related cost reductions

* Operational Efficiencies: Expected customer benefits derived from consolidating trading floor operations into a single facility at CBOT, unifying IT operations and eventually moving CBOT products onto CME Globex®

* Strategic Position: Broader platform to grow core business, innovate new products including over-the-counter offerings, and fully develop the pre-existing strategic initiatives and partnerships of both organizations (CME, 2006)

The company officials stated that "the combined company will be the most extensive and diverse derivatives exchange in the world"; with that statement in mind these are part of the benefits that will offer:

* Highest derivatives volume, with average daily volume approaching 9 million contracts per day and notional value of approximately $4.2 trillion per day based on recent results

* Leading derivatives clearing facility in the world based on volume

* Premier marketplace for interest rate trading for the U.S. dollar-denominated yield curve, including CME Eurodollar futures, the most actively traded futures contract, and the CBOT 10-year U.S. Treasury Note futures, the third most actively traded futures product

* Leading market for equity index derivatives trading, including futures and options on futures on major U.S. equity indexes

* Leading regulated