CME’s Success Attracts DOJ Scrutiny

The runaway success of the CME Group (CME-NYSE) has been a boon for shareholders, but now is attracting the wrong kind of element, and the negotiations with the NYMEX (NMX-NYSE) over a business combination have a new wrinkle to contend with:

The CME is already contemplating growing again, by buying NYMEX Holdings (NMX) for $11.3 billion. The New York Mercantile Exchange is a popular market for the trading of energy futures.

But on Feb. 5, the federal government seemed to throw a roadblock to that purchase. The U.S. Dept. of Justice says it is worried about an inhibition of competition in the financial exchange industry, particularly the control future exchanges have over the clearing of transactions.

The government ruling puts in doubt the large profits CME Group is expecting from its lucrative clearing operation. Some market participants, worried about CME's growing concentration of power, would cheer if CME were forced to spin off its clearing operation. Business Week

Thomas Barnett, assistant attorney general for the Department of Justice's anti-trust division is on a mission it would appear:

"The department believes that the control exercised by futures exchanges over clearing services...has made it difficult for exchanges to enter and compete in the trading of financial futures contracts," said Barnett.

The blistering growth of the derivative exchanges make the numbers at NYSE Euronext (NYX-NYSE) look dowdy by comparision, but this news could not come at a worse time for NYMEX members who have been struggling to transition from the pits to electronic trading.

Competitors have been trying to break the stranglehold held by the CME; does Ken Griffin have anything to do with this?

A group of Wall Street and trading firms, including J.P. Morgan Chase & Co., Deutsche Bank AG and Citadel Investment Group, plan to start an exchange to compete against Chicago Mercantile Exchange parent CME Group Inc. in some of its largest contracts, people familiar with the matter said.

The move is an attempt by some big users of CME to lower their trading fees. CME, which owns both the Chicago Merc and the Chicago Board…

The salad days of the CME might be over, and now they will have to defend their turf from a new assault. Messing with Jack Sandner, the former CME head who moonlighted as a Golden Gloves champ, was a bad idea, but Craig Donohue seems to be cut from a different cloth, and we will soon find out how well he can counterpunch.

Exchange Mergers Hit Roadblocks
Business Week

Firms plan to introduce a rival futures exchange
WSJ
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