Derivatives exchange update

CME Group has been in contact with Cboe Global Markets, its counterpart on the Chicago Board of Trade, on an all-stock transaction to acquire the owner of the Vix Volatility Index for nearly $16 billion.

According to three people familiar with the matter, CME, the world’s largest futures exchange operator, has provided 0.75 shares of its own stock for each Cboe stock. This price will make Cboe valued at around US$150 per share, which is approximately 20% higher than the current price of US$123.

CME Group said it declined to comment on speculation, while the Chicago Board Options Exchange said it “does not comment on market rumors or speculation.”

The acquisition will bring together the two most important names in global financial derivatives. CME will diversify its product line far beyond futures and options contracts related to commodity markets such as oil and wheat and US interest rates.

Cboe was formed in 1973 by the predecessor of CME and owns Vix indices and contracts, as well as stock options exchanges, three stock exchanges and extensive European stock trading and clearing operations.

Stock options trading volume has soared in the past year as fund managers hope to rebound from the March 2020 crash caused by the coronavirus. Retail investors have also flocked to commission-free option trading offered by brokers such as Robinhood. The S&P 500 index has doubled in the past 18 months, while the number of options on technology stocks such as Tesla, Apple, and AMD has soared.

The major US options clearing house OCC said last month that its trading volume in July reached a record high, clearing nearly 800 million contracts, a year-on-year increase of 29%. The clearing house said that this year’s average daily transaction volume increased by 42% to 37 million contracts per day.

If an agreement is reached, it will expand the trading boom among the world’s largest exchange groups, which are expanding in scale and concentrate Support the transaction data and information of a few large participants in the financial market.

According to data from Burton-Taylor International Consulting, in 2019, only more than half of the $35 billion in revenue generated by the industry came from five exchange operators-CME Group, Intercontinental Exchange, London Stock Exchange Group, Deutsche Börse Exchange and Nasdaq.

In recent years, LSE Group acquired data and transaction provider Refinitiv for US$27 billion, while ICE acquired mortgage software provider Ellie Mae for US$11 billion. This will also be the largest acquisition by CME Group since its acquisition of the New York Mercantile Exchange for US$7.9 billion in cash and stock in 2008.

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