CME looks to buy Chicago Board Options Exchange

The contest for the Chicago Board Options Exchange may last into the second half of 2010, as the biggest market for US equity derivatives resolves a lawsuit over who owns it.

CME Group Inc, the world’s largest futures market, is “putting out feelers” to buy CBOE for about $5 billion, Crain’s Chicago said yesterday, citing people familiar with the matter it didn’t name. The CBOE has said it won’t be able to change into a stock-based company until a lawsuit over how its membership interests are divided is settled. The deadline for appeals in the case by CME’s Chicago Board of Trade is October 21.

“I’m skeptical,” said Richard Repetto, an analyst with Sandler O’Neill & Partners LP in New York. “Would they be talking? Absolutely. But they have got to understand and work through a lot of issues.”

Options trading is heading for a record year and has more than quadrupled since 2002, as investors seek to hedge equity holdings and amplify returns, according to data compiled by Options Clearing Corp. CME cemented its hold on futures in the past three years with the purchase of CBOT and the New York Mercantile Exchange.

Faster growth
“The trend over the last few years is that derivatives are growing stronger than the underlying cash market,” said Simon Bonouvrie, who helps manage about $1.5 billion at Platypus Asset Management in Sydney. “As a result, exchanges see the avenue of growth being in derivatives trading, including options.”

Allan Schoenberg, a spokesman for Chicago-based CME, said the company doesn’t discuss speculation. Carol Kennedy, a spokeswoman for CBOE, declined to comment. There is no formal bid, and negotiations are on hold until after the deadline for filing appeals in the lawsuit, Crain’s said.

A bid may value each CBOE seat at about $4 million, a 50 percent premium that would total as much as $5 billion for the whole exchange, according to Crain’s.

CBOE Chairman Bill Brodsky said last month that the Chicago-based company won’t finish the process of demutualizing, or exchanging stock for the ownership interests of its members, until next year after settling the CBOT lawsuit.