CHICAGO -- Shareholders of the Chicago Board of Trade appear to have approved a merger with the Chicago Mercantile Exchange, creating the largest derivatives market ever.
Final vote totals won't be available for several days, but CBOT Chairman Charles Carey said yesterday afternoon that "preliminary indications are this thing is going to pass overwhelmingly."
"We are now going to be on the world stage," said Leo Melamed, chairman emeritus of the Merc and the man most responsible for futures trading of financial instruments.
The $11.9 billion deal ends four months of jockeying between Chicago Mercantile Exchange Holdings Inc. and upstart IntercontinentalExchange Inc. to acquire the 159-year-old Chicago Board of Trade.
Intercontinental, an Atlanta-based energy exchange, waged an aggressive proxy fight, urging shareholders of CBOT Holdings Inc., CBOT's parent company, to vote against the merger, which would have cleared the way for ICE's competing offer.
ICE offered as much as $11.7 billion, but refused to raise its offer Friday when the Merc raised its bid a third time to win over CBOT's largest shareholder, Caledonia Investments of Australia.
The Merc's higher bid, improved from the $8 billion offered in October, won over Caledonia and sealed the deal.
While the merger ends a sometimes rancorous competition between the two exchanges that dates back decades, it solidifies Chicago's role as a global center for the trade of derivatives.
The contracts changing hands at the Merc and Board of Trade are a step removed from investments in tangible goods and are used to hedge risks or place bets on market movements, providing leverage that can turn small fortunes into big ones.
The new exchange will have average daily trading volume approaching 9 million contracts per day, easily surpassing all of its direct competitors, with a market capitalization of more than $25 billion.
John Lothian, editor of the John Lothian Newsletter, which covers exchange issues, said that after the merger is completed the combined exchanges won't be satisfied with being simply the world's largest.
"We are in an age of consolidation," Lothian said. "They will be looking at acquiring exchanges."
Leaders of both exchanges have said the Merc takeover bodes well for the city.
Though the exchanges directly employ fewer than 2,200, a number expected to shrink by several hundred, they generate tens of thousands of local jobs through their trading activity.
The Merc and CBOT got their start in corn, soybeans, butter, eggs and other agricultural commodities, and their traders still set benchmark prices for the global farm economy. During the 1970s and 1980s, the exchanges hit it big by applying the same trading formula that worked for pork bellies to bonds, foreign currencies and stock indexes.
Robert Manor writes for the Chicago Tribune.