CME Group, the world's largest futures market operator, purchased
the Kansas City Board of Trade, tightening its grip on wheat trading at a time of
heightened competition between exchanges.
CME, the operator of the Chicago Board of Trade, brought
trading in wheat varieties accounting for well over half the US crop under its
wing with the purchase of KCBT for $126m in cash, plus a one-off payment of
excess cash to the Kansas exchange's members
The hard red winter wheat traded in Kansas accounts for a
far bigger proportion of the US wheat crop than the soft red dealt in Chicago –
although the extent of investor interest in CBOT wheat makes its contracts more
liquid and more widely followed.
Indeed, Steven Campbell, the KCBT chairman, cited the "increasing
operational demands and regulatory requirements" involved in operating an
exchange for the decision to sell.
"It was deemed beneficial that the KCBT partner with an
exchange with the technology, experience, leadership and resources of CME
Group," he said.
Battle of exchanges
Mr Campbell added that the Kansas board had considered
tie-ups with "a number of qualified interested parties", before settling for
the CME deal, although he declined to name other suitors.
The deal comes amid heightened competition, and a land grab,
between agricultural commodities exchanges, and notably between CME and Ice,
the operator of New York's soft commodities markets.
CME in 2007, in its last substantial deal, beat Ice to the $11bn takeover of CBOT.
Ice early this year began offering grain and oilseed contracts based on benchmark Chicago peers, and traded over extended hours,
prompting CME to extend the trading day at CBOT.
Ice has also expanded into grains and canola in Canada,
where the deregulation of crop marketing is allowing farmers choice over where
to sell, while CME earlier this year launched futures in Black Sea wheat, and has applied for consent for an exchange in London.
The competition has weighed on margins at exchange operators
besides fuelling a drive for fresh products, both factors which have favoured
In terms of sale prices for its Class A seats, which offer
one share of ownership too, KCBT saw its fortunes peak when one went for aa
record 725,000, well above the average of $477,059 last yer.
"Trading has evolved dramatically, with an increasing emphasis
on technology in recent years," said Jeff Borchardt, the KCBT chief executive.
His CME counterpart, Phupinder Gill, said that the tie-up
with KCBT would foster "cross-margining benefits and other capital efficiencies",
as well as offering opportunities for product development "not only in futures,
but also in options that can help market participants manage risk at a reduced
cost during targeted timeframes in the crop year".