Chicago: CME Group Inc on Wednesday struck a deal to buy the Kansas City Board of Trade for $126 million cash, cementing CME’s dominance in world grain futures markets and keeping rival IntercontinentalExchange from gaining a key foothold.
The acquisition is CME’s first exchange purchase in five years since it wrapped up a buying spree that put the Chicago Mercantile Exchange, the Chicago Board of Trade and the New York Mercantile Exchange all under its control.
CME’s Chicago Board of Trade wheat, soybean and corn contracts, mainstays of world agricultural trade for decades, face a big challenge after the ’s launch this year of look-alike grain futures.
So far, the Atlanta-based electronic exchange’s copycat contracts have garnered little volume. But CME has still responded aggressively to protect its market, expanding trading hours dramatically to keep step with in a move some floor traders have protested.
Chicago-based CME beat out several rivals before clinching the deal, KCBT president Jeff Borchardt told reporters on a conference call. He did not name the other bidders.
has declined to comment on speculation that it was in talks with the KCBT and on Wednesday a spokeswoman did not immediately respond to a request for comment.
In 2007, lost out to CME in a bidding war for the CBOT.
“It’s a further consolidation of exchanges and makes economic sense,” said Sterling Smith, futures strategist for Citigroup. KCBT’s wheat contract is already offered on CME’s electronic trading system, and after the acquisition its clearinghouse will be absorbed into CME’s.
News of the acquisition sparked speculation that the Minneapolis Grain Exchange could also become a takeover target.
“I thought Minneapolis would be the first to be gobbled up,” said Ken Smithmier, market analyst for The Hightower Report, a Chicago-based research and advisory firm. Smithmier added that the pr was cheaper than he expected.
The Minneapolis Grain Exchange spring wheat futures contract is less active than Kansas City’s hard red winter wheat and, unlike the KCBT or CBOT, is only traded electronically, on CME’s trading platform.
“We remain focused on completing this transaction, as we believe it will create significant value for customers and shareholders of both companies,” a CME spokesman said in response to a query about the possibility of buying yet another grain market.
“MGEX extends our congratulations to both the CME and KCBT on this announcement,” a Minneapolis Grain Exchange spokeswoman said.
As part of the deal, expected to close later this year, CME has agreed to keep the Kansas City market’s trading floor open for at least six months.
CME executive chairman Terrence Duffy noted that CME has kept its Chicago trading floor open for much longer than many observers had expected, and said there were no set plans to shut the floor if it still provides value.
The trading floor at the KCBT is a fraction of the size of Chicago’s. Until just a few years ago it was a buzzing and bustling, packed with frenetic traders who fought their way in and out of the packed circular pit, shouting, waving arms and using time-tested hand signals to buy and sell thousands of bushels of wheat in seconds.
The lore of the trading floor includes the story of one old-time trader who suffered a heart attack in the midst of a particularly busy trading session. He was attended to, but the pit action barely paused as fellow traders took orders out of his pockets and continued their shouting and gesticulating to make sure his trades got filled.
A longtime trader who has been trading wheat futures since 1978 said the buyout by CME marks the end of an era.
“The floor used to be vibrant,” he said. “Now it is nothing in terms of volume. That is a sad thing to me. I’m not adverse to change. And I do most of my stuff on the screen now anyway. But we’ve got 156 years of history here. It’s sad to lose that.”
The deal will bolster volume in both CME’s and KCBT’s wheat contracts, and provide new trading opportunities, CME’s Duffy said. Soon to be added are options on spreads between the two contracts, CME’s top commodities executive told reporters.
The KCBT, which offers futures on hard red winter wheat, will make a special distribution of excess cash to members when the deal closes, CME said in announcing the deal. A KCBT official declined to give a figure, but said it would be substantial.
CME shares were down 22 cents to $57.27 in morning Nasdaq trade. REUTERS