ICE CEO: A Dow Jones-S&P Index Deal Would Raise Competition Issues

A potential deal to combine the Dow Jones and Standard & Poor's stock index businesses could pose antitrust questions for the derivatives industry, according to the chief executive of IntercontinentalExchange Inc. (ICE).

"It raises interesting competition issues," said Jeff Sprecher, CEO of ICE, which has competed for rights to list contracts on key indexes.

Deal talks between S&P parent McGraw-Hill Cos. (MHP) and CME Group Inc. (CME), majority owner of the Dow Jones indexes, were reported in late September and seen giving CME a 25% stake in a combined index business managed by McGraw-Hill. Both firms have declined to comment the matter.

Such a deal is seen granting CME long-lasting control over use of the two best-known benchmarks for U.S. stocks for the purpose of trading futures and options. Contracts linked to the value of the S&P 500 make up the most heavily traded stock-index derivatives traded by both CME and the neighboring Chicago Board Options Exchange.

Exclusive licenses to trade index-based products are closely guarded by exchanges and have been the subject of intense negotiations in the past. Sprecher's ICE in 2007 successfully wrested from CME the license to trade futures on the Russell 2000 index of small-cap stocks, a closely watched contest that ultimately saw trading in the market shift from CME to ICE in September 2008.

Last year, the U.S. futures market run by NYSE Euronext (NYX) obtained a license to trade contracts linked to MSCI Inc. (MSCI) indexes, which previously had traded at CME.

In the options market, the International Securities Exchange has for years been waging a legal battle to loosen CBOE Holdings Inc.'s (CBOE) grip on S&P 500 options contracts, for which the CBOE holds an exclusive license.

Talks between CME and McGraw-Hill were reported to be ongoing and no deal was certain to happen. Sprecher noted in an interview Tuesday that the issue has arisen as European competition authorities have taken a closer look at the tie-ups between exchanges and stock indexes.

European exchanges such as the London Stock Exchange Group plc (LSE.LN) have pushed for a more open system of licensing stock indexes with some of the region's most widely followed benchmarks owned by rivals like NYSE Euronext and Deutsche Boerse AG (DB1.XE), which are progressing with a merger sealed in February. The issue is among several being examined by the European Union antitrust officials now weighing the deal.

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

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