Tuesday, January 29, 2008

One exchange to rule them all...

(It seems I have slipped into a LOTR motif) With merger talks briskly underway with NYMEX, speculation the about KCBT and MGE is in the air.
The president of the Kansas City Board of Trade said Tuesday that a takeover of the exchange "could very well happen," a sharp turnaround from previous official comments.

Jeff Borchardt told Dow Jones Newswires in an interview that the exchange has a "very good, time-tested business model" and could be a target for a buyout. His comments represented a shift from this summer, when a KCBT spokeswoman said the exchange was "not interested at all in any type of sale."

"Anything's possible and that could very well happen," Borchardt said Tuesday about the potential for a takeover. "I think the members understand that. They're very good business people themselves. They understand, with the continued consolidation, there is the likelihood that that might present itself."

The KCBT, which primarily trades hard red winter wheat futures and options, is one of the last member-owned exchanges in the U.S. that hasn't yet been gobbled up as part of consolidation within the industry. The Minneapolis Grain Exchange, which trades spring wheat, also remains on the list and is open to buyout offers, a spokeswoman said. [More]
Of course, the instinctive reaction for many of us is suspicion of monopolies of any kind. In this case, I dunno.
The CME Group's proposed $11 billion acquisition of the New York Mercantile Exchange is generating both praise and unease, as analysts and brokers reacted to the possibility of a solitary powerhouse controlling 98 percent of the country's futures volume.

The combination would extend CME Group's reach into the lucrative realm of energy and metal futures contracts, adding to its dominance in financial and agricultural futures. [More]
First of all, if it's not the CME, it will likely be another trading bourse. And without being too xenophobic, the Merc is a devil we know.

Then it is hard to see what the impact will be, since electronic trading - now the vast majority of traffic - has already eliminated many of the impediments to money flowing like beer at a fraternity kegger between exchanges. I suppose they could enforce higher clearing charges, but I think competition is too steep to allow that.

Besides the staggering volume increases and stream of new trading vehicles is where the exchanges rake in their considerable loot - not gouging traders.

So as long as we keep it in Chicago, I say "In the darkness bind them."*

*I reserve the right to change my mind after I talk to some of my broker buddies.


Anonymous said...

Mergers are a trend these days. Bigger companies are expanding by buying out their competition. Can I tell you about the Young Entrepreneur Society from the www.YoungEntrepreneurSociety.com? A good resource for entrepreneurs.

John Phipps said...


Thanks for the link. I am far from young, but I always found entrepreneur advice difficult to apply to my career.

However, things have changed mucho and my son will be much more like other business people than I was, I'm sure.