Market Matters Blog
Katie Micik DTN Markets Editor

Monday 12/03/12

CME Completes KCBT Acquisition

CME Group completed its acquisition of the Kansas City Board of Trade on Monday, bringing two of the world's benchmark wheat futures contracts under one roof. CME executives have said the move provides clearing efficiencies, new trading opportunities and the potential for new hard red winter wheat options productions.

"We're pleased to complete this transaction, combining KCBT Hard Red Winter Wheat products with our deep and liquid CBOT Soft Red Winter Wheat futures and options markets," said CME Group Executive Chairman and President Terry Duffy in a press release. "The integration of these two global wheat benchmarks will provide new trading opportunities to commercial grain market participants, wheat traders and customers who continue to rely on these tools to manage their price risk."

"The addition of KCBT to CME Group will provide significant value to the customers, shareholders and members, beginning on day one," said CME Group CEO Phupinder Gill. "Starting today, we're integrating hard red winter wheat futures and options into our suite of already deep and liquid grain and oilseed products. Moving forward, we'll work with customers to grow existing KCBT and CBOT Wheat futures and options, while developing new and innovative products that will benefit customers of both varieties of wheat."

Starting today, CME and KCBT members and permit holders will be able to trade more cost effectively on the CME Globex platform and once clearing services are integrated, the cross-margining benefits and other capital efficiencies will kick in, CME said in its release.

But traders won't be able to start trading the spread opportunities until Monday, December 10. The implied inter-exchange KCBT-CBOT Wheat futures spread will be available for trading on CME Globex.

CME has promised to keep the Kansas City trading floor open for at least six months.

Posted at 10:29AM CST 12/03/12 by Katie Micik
Comments (3)
Do any readers have a view on the independent Minneapolis exchange? Is there any reason management of MGEx should not seek a buyer?
Posted by THOMAS FARLEY at 1:11PM CST 12/03/12
That's a great question. ICE's grain contracts haven't taken off, and this acquisition brings three (SRW, HRW, Black Sea) wheat futures contracts under one roof. KCBT Executive Vice President Jeff Borchardt said it makes "CME Group a comprehensive marketplace for the global wheat trader." Executing a KCBT-CBOT wheat futures spread will be simplified into a single trade instead of legging into each contract. But what baker would really like would be a simple MGEX-KCBT spread that would allow them to hedge protein. Is that direction MGEX is heading?
Posted by KATIE MICIK at 1:54PM CST 12/03/12
It seems to me that Minneapolis is being held hostage by its executives. Without a merger the MGEx will become irrelevant. Even now the Minneapolis wheat contract is unavailable on popular platforms like Interactive Brokers. Further, the Minneapolis exchange should be attractive to the ICE (which has struggled to get a viable wheat contract going) and/or to Euronext (which has active wheat contracts in Paris and London) as well as to the CME... At a current value of around $30 million excluding real estate, the market is saying that the current management of the MGEx is likely to drive it into the ground.
Posted by THOMAS FARLEY at 9:42AM CST 12/04/12
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