CME Group Watches As Futures Rivals Bid For Position

The outlook for global competition may have brightened for CME Group Inc. (CME) despite a chilly drizzle in the Windy City Friday, as fresh uncertainty was injected into rivals' plans to team up.

A takeover of NYSE Euronext's (NYX) Liffe futures division by IntercontinentalExchange Inc. (ICE), proposed Friday in a joint approach with Nasdaq OMX Group (NDAQ), would leave CME with two main competitors in European derivatives rather than one big platform that would overshadow CME on the global stage--a prospect raised by NYSE's agreed merger deal with Deutsche Boerse AG (DB1.XE).

"I think CME would rather see ICE get the [Liffe business] because it makes things less competitive for them in the futures space," said Jeffrey Carter, a private investor based in Chicago and former CME board member. "I don't think this hurts CME at all."

CME executives have vowed a focus on organic growth against the recent wave of consolidation that has seen exchanges strike cross-border deals across North America, Europe and Asia.

The Chicago-based company, operator of the world's largest futures platform by contract volume, was slated as a potential spoiler of the NYSE-Deutsche Boerse deal immediately after its mid-February announcement. Executive Chairman Terry Duffy downplayed the idea publicly, saying it would be tough to dismantle NYSE Euronext's businesses to get at the futures piece attractive to CME.

Acquiring the London-based Liffe unit of NYSE Euronext would vastly expand energy- and commodities-centric ICE's listed futures offering to include heavily traded contracts linked to U.K. interest rates and stock indexes, and provide an opening to handling interest-rate swap deals in the over-the-counter market.

It would make ICE a much more formidable challenger in Europe, a key area of expansion for CME as it works to develop international trade, particularly in its own energy products and services. CME executives anticipate non-U.S. volume growth to outpace domestic dealing in the years ahead.

But compared to a combined NYSE-Deutsche Boerse--which would create the world's biggest futures market by adding Liffe's futures roster to a host of complementary contracts traded on the larger German platform Eurex--an ascendant ICE could be the lesser of two evils.

Others see the potential for further dealmaking by CME, which built its leading position on more than $20 billion in acquisitions for the Chicago Board of Trade and the New York Mercantile Exchange over the last five years.

CME wouldn't be able to displace ICE in Nasdaq's offer for NYSE Euronext, Nasdaq Chief Executive Bob Greifeld said during a conference call Friday. But one exchange-sector investor saw the potential for CME to launch its own bid for ICE.

"Everyone's teaming up, except for CME, and they're being very quiet," said the investor, who wasn't authorized to speak publicly.

A representative for CME on Friday reiterated the company's stance on sector consolidation. "We compete with other exchanges every day and the recent consolidation news doesn't really change the competitive landscape," he said.

CME shares settled 0.9% higher Friday at $304.27. ICE's shares fell 3.1% to $119.75, seen driven lower by the higher-than-expected offer of $6.3 billion for the Liffe businesses and the heavy stock component of the proposed deal.

The global game of exchange horse-trading went little noticed around CME's Chicago trading floor Friday. Alex Manzara, a 25-year veteran of fixed-income futures trading, called the prospect of the ICE-Liffe combination "just another platform."

"I don't think it makes a big difference to me and users of the markets," said Manzara, a broker with TJM Investment Services.

-By Jacob Bunge, Dow Jones Newswires; 312-750-4117; jacob.bunge@dowjones.com

--Howard Packowitz contributed to this article.

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