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  #1  
Old Posted Jan 28, 2008, 3:19 PM
the urban politician the urban politician is offline
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Cool CHICAGO: Economic & Finance News

CME Group in Talks to Buy Nymex for $11 Billion
Companies:Nymex Holdings, Inc. | Chicago Mercantile Exchange Holdings Inc

By Reuters
| 28 Jan 2008 |

CME Group is in preliminary discussions to buy Nymex Holdings for roughly $11 billion, the companies said in a joint statement Monday.
AP

Under the terms being discussed, CME, the parent of the Chicago Mercantile Exchange, would pay Nymex shareholders $36 in cash and 0.1323 of a CME common share for each Nymex share owned.

Based on CME's closing price on Friday, the preliminary offer values Nymex shares at roughly $119.22 each, an 11 percent premium to Nymex's closing share price on Friday.
http://www.cnbc.com/id/22879868
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  #2  
Old Posted Jan 28, 2008, 3:52 PM
Nowhereman1280 Nowhereman1280 is offline
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I had a feeling CME was looking for some more, weaker, financial institutions to gobble up! Hurray for CME group! Hurray for Chicago and its emergence as a dominant player in world financial markets!
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  #3  
Old Posted Jan 28, 2008, 3:54 PM
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This is not surprising. I think NMX's stock may already have been moving back up last week on M&A rumors.

It had cratered at $90 a share on the 17th, but down significantly from December.

Also, if you consider Jim Cramer to be a contrary indicator (I do), you could have seen this coming. On his show two Friday's ago he said it was time to sell and take profits on NMX because the merger everyone was waiting for seemed less and less likely. Jim Cramer saying merger unlikely = expect an announcement on Monday.


It's a great move for CME I think. Nymex has a dominant position in U.S. energy contracts (oil & natural gas) which will be lucrative long-term, but its shares have been pounded recently (and only supported by rumors of a buyout) due to the expected slowdown in transaction volume as banks limit prop trading in energy derivatives. If you can make a good long-term investment in an asset that investors are moving away from due to their short-term focus, you can make a good deal. The CME already provides clearing services for NMX, I believe, so that's helpful operationally, and there are I'm sure numerous cost efficiencies to be introduced by the superior CME management team.
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Old Posted Jan 28, 2008, 3:56 PM
Nowhereman1280 Nowhereman1280 is offline
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^^^ Yeah, for as fun as Jim Cramer is to watch, I have to agree it seems that the opposite of everything he predicts happens...
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  #5  
Old Posted Jan 29, 2008, 2:48 AM
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The CME is a hungry lion. Look what else it has on its plate:

Jan. 28, 2008
Kansas City, Minneapolis exchanges next CME targets?
(Reuters) — CME Group Inc.'s negotiations to buy Nymex Holdings Inc. fueled talk on Monday that Chicago-based CME could make a bid for the grain exchanges in Kansas City and Minneapolis.
http://www.chicagobusiness.com/cgi-b...01-28&id=27933
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  #6  
Old Posted Jan 29, 2008, 2:54 AM
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Neither Minneapolis or KC has any reason to exist on their own. They've each got one type of contract in which they're the leader, as the article mentions.

The world is going global and as a result consolidating at the same time. Once upon a time being the county seat meant banks and law firms were on Main Street, then it was the biggest city in the state, then the region, and now the world. Chicago by virtue of size seems to be having some success in making that transition and remaining a money center. Places like Kansas City and Minneapolis do not have futures as financial centers (note: "financial center" does not mean "a bank / insurance company / asset manager / etc is based there... e.g., despite the headquarters of BofA and Wachovia, Charlotte NC is not a global financial center).
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  #7  
Old Posted Jan 29, 2008, 3:55 AM
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10023, where do you see Chicago's role in global finance headed?
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  #8  
Old Posted Jan 29, 2008, 4:58 AM
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^^^ Well I think we can say one thing, CME group isn't going to be leaving Chicago any time soon, its becoming quite the beast...

Now we just need to steal/create a major stock exchange...
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  #9  
Old Posted Jan 29, 2008, 5:25 AM
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Quote:
Originally Posted by the urban politician View Post
10023, where do you see Chicago's role in global finance headed?
Quote:
Originally Posted by Nowhereman1280 View Post
^^^ Well I think we can say one thing, CME group isn't going to be leaving Chicago any time soon, its becoming quite the beast...

Now we just need to steal/create a major stock exchange...
No. There's no need for another stock exchange to be created, especially not in the U.S., which has trailed London and Asia in new listings for years as a result of disparities in economic growth and burdensome regulation. The CME is not going to buy NYSE/Euronext, and even if they someday merged, it wouldn't result in a mass relocation of New York's equity traders or investment banks that underwrite equity issues to Chicago.

Cities thrive because they reach a critical mass in a particular industry or service that becomes self-reinforcing. Hence Silicon Valley has come to dominate the software and internet business, despite the fact that (due to those very products and services) physical location is now supposed to be unimportant, or at least was in the minds of 1990s prognosticators. But this ignores the obvious benefits of geographic concentration, and to an extent competitive clustering. You see this at the most basic level in something as basic as suburban strip shopping areas. Ever notice that all the car dealers tend to be right next to each other, and where there's a McDonald's there is usually a Burger King, a Wendy's, a Taco Bell, etc right there as well? Rather than wanting to locate away from each other in order to protect turf and not lose customers to the other guys, they benefit from proximity, because customers know where to look, and because each believes that they will take market share from the others, rather than vice versa.

Chicago will always be a secondary financial center to New York, but it has developed a niche in derivatives that gives it pre-eminence on a global scale. The markets are in Chicago, so everyone tied to that industry must be as well. And while the few hundred or few thousand people trading on the floor are pretty insignificant, just as the people on the floor of the NYSE are insignificant, the real "critical mass" is the dozens or hundreds of trading floors scattered across the city, the hedge funds that trade the products, the financial firms that make the markets, the lawyers and accountants that specialize in the particular arcane points of law and accounting that come into play, etc.

I don't think we'll see a day, at least not this century (never say never) when Chicago surpasses New York as a financial center. I don't even think New York will be the world's largest financial center at the end of this century. But it seems to now have a defensible position as a necessary cog in the global financial machinery, just as Boston has a solid position in asset management. It's very important for these cities to protect that, as it becomes the cornerstone of any effort to revitalize the city and ensure economic prosperity, by basically creating a floor level of white collar, high salary employment in the trading, investment, legal and accounting sectors. And being #1 at something is very important, because it makes a city the place that the industry naturally consolidates into, rather than away from.

All that said, I work in the very New York business of mergers & acquisitions advisory now, so this is not an insiders' perspective per se... just one that comes from reading every utterance of the financial press as a matter of daily routine.

Last edited by 10023; Jan 29, 2008 at 6:09 AM.
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  #10  
Old Posted Jan 29, 2008, 5:52 AM
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not sure why this is in city discussions but I hope we don't digress into who's #1 in global finance (london vs. nYc)

we all know there's a handful of global leaders in finance and leave it at that.
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  #11  
Old Posted Jan 29, 2008, 6:11 AM
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^ Yes, I think a less argument prone title would be something like "Chicago's leadership in futures and derivatives" rather than "dominance of financial markets", but hopefully people can keep their pants on.
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  #12  
Old Posted Jan 29, 2008, 7:10 AM
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[QUOTE now we just need to steal/create a major stock exchange...[/QUOTE]

Actually compared to futures and derivative exchanges, stock exchanges are low growth. I would doubt CME ever buys an equities exchange unless a major client or markets demand one offered through their Globex trading platform. More likely you'll see a consolidation of the previously mentioned KCBT and the MGE and than most likely after the CBOE finally goes public, I think the CME swoops in and takes back what they think is rightfully theirs.

As for large plays by the CME in the future, look for an over seas deal in about 18 to 24 months with a major European or Asian Exchange. At that point you won't have to worry about the CME ever being the target of another exchanges lusty desire...
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  #13  
Old Posted Jan 29, 2008, 4:04 PM
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Quote:
Originally Posted by 10023 View Post
^ Yes, I think a less argument prone title would be something like "Chicago's leadership in futures and derivatives" rather than "dominance of financial markets",
that's a good idea, i've gone ahead and changed the title to avoid the inevitable idiocy.
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  #14  
Old Posted Jan 29, 2008, 4:21 PM
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Good news on the NYMEX.
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  #15  
Old Posted Jan 29, 2008, 6:18 PM
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Originally Posted by 10023 View Post

Cities thrive because they reach a critical mass in a particular industry or service that becomes self-reinforcing. Hence Silicon Valley has come to dominate the software and internet business, despite the fact that (due to those very products and services) physical location is now supposed to be unimportant, or at least was in the minds of 1990s prognosticators. But this ignores the obvious benefits of geographic concentration, and to an extent competitive clustering. You see this at the most basic level in something as basic as suburban strip shopping areas. Ever notice that all the car dealers tend to be right next to each other, and where there's a McDonald's there is usually a Burger King, a Wendy's, a Taco Bell, etc right there as well? Rather than wanting to locate away from each other in order to protect turf and not lose customers to the other guys, they benefit from proximity, because customers know where to look, and because each believes that they will take market share from the others, rather than vice versa.

Chicago will always be a secondary financial center to New York, but it has developed a niche in derivatives that gives it pre-eminence on a global scale. The markets are in Chicago, so everyone tied to that industry must be as well. And while the few hundred or few thousand people trading on the floor are pretty insignificant, just as the people on the floor of the NYSE are insignificant, the real "critical mass" is the dozens or hundreds of trading floors scattered across the city, the hedge funds that trade the products, the financial firms that make the markets, the lawyers and accountants that specialize in the particular arcane points of law and accounting that come into play, etc.

I don't think we'll see a day, at least not this century (never say never) when Chicago surpasses New York as a financial center. I don't even think New York will be the world's largest financial center at the end of this century. But it seems to now have a defensible position as a necessary cog in the global financial machinery, just as Boston has a solid position in asset management. It's very important for these cities to protect that, as it becomes the cornerstone of any effort to revitalize the city and ensure economic prosperity, by basically creating a floor level of white collar, high salary employment in the trading, investment, legal and accounting sectors. And being #1 at something is very important, because it makes a city the place that the industry naturally consolidates into, rather than away from.
I don't think anyone meant to imply that Chicago was going to pass NY as a financial center. As you said, that would be virtually impossible for our lifetime. But it is interesting how quickly the CME rose as one of the world's largest financial exchanges. And all signs point to further growth, which is great for those of us interested in Chicago's civic accomplishments.

BTW, excellent description of the concentration of things in cities. Thanks.
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Old Posted Jan 29, 2008, 7:22 PM
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^ I think it's interesting that technology has tended to concentrate industries, rather than diffuse them.

Part of this may be the simple fact that it's important for people to have as many employment options as possible without having to move. Most people these days, especially finance professionals, tend to move between firms like a game of musical chairs. Most people on Wall Street don't stay at one firm for more than 5 years, and you're always "window shopping" for attractive new opportunities. For this to be possible, you have to be in a place where there are hundreds or thousands of possibilities, which is why younger professionals in particular are so attracted to New York. Going back to the Silicon Valley example, one of the reasons those industries have become concentrated there is because the bright young programmers and entrepreneurs want to be in a place where the next opportunity is down the street, not hundreds of miles away, and the venture capital firms that make it all happen are showing up at every social gathering.

It's true that technology and innovation, like cheap flights and the internet and email, enable people to work anywhere. But instead of some sort of entropic effect that scatters these industries far and wide, it's enabled people to work where they want to, which for various reasons such as the example above usually means in the center of the particular industry. The other effect is that you don't need a local presence everywhere, because it's easy to fly out for the day or do things remotely via teleconferencing and email. So instead of investment banks, for instance, having local offices in places like Dallas and Denver to serve corporate and private clients in those cities/regions, they've simplified things and consolidated in a few key finance centers, where they can remain in contact with clients on a day to day basis via phone and email and can always hop on a quick flight for a face to face meeting.

It's a "rich get richer, poor get poorer" phenomenon, where the cities with the necessary industry concentration will continue to attract companies and people and the cities without that critical mass will continue to lose them. And city leadership and captains of industry know this, which is why you see half the large but not huge cities in the country claiming to be the future Silicon Valley of biotech. The explosion of these futures and derivatives markets in Chicago and the related risk management business can hopefully enable it to be the former.
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Old Posted Jan 29, 2008, 7:38 PM
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Quote:
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[QUOTE now we just need to steal/create a major stock exchange...
Actually compared to futures and derivative exchanges, stock exchanges are low growth. I would doubt CME ever buys an equities exchange unless a major client or markets demand one offered through their Globex trading platform.
[/QUOTE]

I was being sarcastic, I don't actually think that we can or really even want us to get a stock exchange. Nor do I think Chicago, or any city for that matter, will be able to come to completely dominate the global financial markets. Even New York is seeing new competition from rising Asian super cities of Finance.
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  #18  
Old Posted Jan 29, 2008, 8:18 PM
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Quick question(s)...

Say, for instance, you had a stock exchange and a futures exchange of about the same size, which one would attract more related businesses, or is there not much of a difference?

Second, is there any validity to chicago trying to attract a stock exchange to help diversity it's business sector? For example, let's say the futures market goes down... (maybe not a collapse, but industry contraction instead of growth) Would having a decent stock market help mitigate being to reliant on one industry?
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Old Posted Jan 29, 2008, 8:27 PM
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Yes, a very interesting perspective on the causes/effect of this and other consolidations, and a good summary of the financial sector in general. thanks 10023
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  #20  
Old Posted Jan 29, 2008, 8:54 PM
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Chx

Quote:
Originally Posted by Eventually...Chicago View Post

Second, is there any validity to chicago trying to attract a stock exchange to help diversity it's business sector? For example, let's say the futures market goes down... (maybe not a collapse, but industry contraction instead of growth) Would having a decent stock market help mitigate being to reliant on one industry?
Chicago has had a Stock exchange since 1882..

Its located just South of the CBOT and shares the same building as the CBOE if I'm not mistaken...

Chicago Stock Exchange, Inc.
One Financial Place
440 South LaSalle Street
Chicago, Illinois 60605

Here's a link to their site below,

http://www.chx.com/
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