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Tickers in this Article: CME, ICE, BOT, NYX
Thirty years ago or so, the Chicago Board of Trade (NYSE: BOT) was the big deal in Chi-town with the statue of Ceres, the Greek goddess of agriculture, proudly standing on top of the CBT looking down on LaSalle Street.

The Chicago Mercantile Exchange (NYSE: CME), the "Merc" as it is called, across town on Wacker Drive was viewed as the poor relation where they traded pork bellies and hogs.

There has been a great deal of changes since then.

The Chicago Mercantile Exchange started out as the Chicago Egg and Butter Board in 1898. That humble beginning stands in stark contrast to the Merc now being the largest futures exchange in the world.

The Merc has a well deserved reputation as being an innovator; they were the first to introduce financial futures, the first with foreign exchange futures and the first with electronic trading. We could talk about the number of contracts traded, the growth in revenue and operating margins, but it all comes down to one simple fact; since going public in December of 2002, the price of their shares has risen in excess of 1,500%.

The Intercontinental Exchange (NYSE: ICE) has not been standing still. Formed in May of 2000, their business is an all-electronic platform for trading energy and over-the-counter contracts. ICE acquired the International Petroleum Exchange in 2001 and noted for their Brent Crude contract.

In January of this year, ICE acquired the New York Board of Trade where such contracts as coffee and sugar are traded. With only a very brief history, ICE has done a good job so far as evidenced by their shares rising over 400% since inception.

Starting out trading wheat, corn, oats and soybeans years ago, the Chicago Board of Trade started the equity options business with the Chicago Board Options Exchange, the CBOE, and of course its Treasury complex futures. That was where the innovation stopped.

On April 4th, the members and owners of the Chicago Board of Trade will vote on whether to accept the Chicago Mercantile Exchange's offer of $150 per share. ICE chose the Ides of March to make a competing offer for CBT that on the face of it is 10.5% better.

However, there is more to consider. To begin with, there are a number of product synergies, such as interest rates and their derivatives like interest rate swap futures. Cost savings by eliminating overlaps look like approximately $125 million per year. The CME has a much broader spectrum of product offerings and considerably longer history than ICE. Lastly, the big deal is clearing. The CME has its own clearing operations where its contracts cannot be transferred to another competing exchange.

There are a few risks that investors need to know. Regulators could intervene and bar the transaction. They might require a third party to clear trades which would lead to lower revenues and competition from competing exchanges. Slowing hedge fund growth could negatively impact all of the futures exchanges.

NYSE Group (NYSE: NYX) has come a very long way since the days of trading government bonds under the buttonwood tree in 1792. By going public with its merger with Archipelago in March of 2006, NYSE Group has taken a leadership position in an industry wide consolidation. Followig closely in May of 2006 was the merger with Euronext, giving the group very much of a global presence. The combined capabilities of these mergers give the NYSE Group cross-border markets in not only equities, but in options, bonds and futures as well.

NYSE Group is not without competition. The days of the old specialist system having a lock on trading are gone with the advent of electronic trading, regional exchanges, after-hours trading and even investment banks can and do make an upstairs market in equities. However, investors do look to that huge pool of liquidity that the NYSE Group can provide in tough times and with its new capabilities, the odds are NYSE Group should continue to do well.

All of these firms have large market capitalizations but also have price/earnings multiples hovering around 50 times. Given that, investors should use caution when entering or exiting a market.

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