For years CBOE Holdings, the exchange group which operates the largest US options
exchange, has had to watch its rivals from across
the street make acquisition after acquisition. For
years it had to deal with persistent rumours that
it would eventually be taken over by the CME.
Yet in September the markets were stunned
when it was revealed that CBOE will acquire Bats
Global Markets in a $3.2 billion deal, creating a
new global exchange behemoth to challenge the
likes of ICE, CME Group and Nasdaq.
The tie-up would bring the largest US equity
and index options market with the largest pan-European equities market by market share, and the
second largest US stock market by shares traded.
Kansas-based Bats Global Markets was founded by a team including now-chairman Joe
Ratterman in 2005. In 2008 it opened in
European equities and now operates the largest
European equities venue by market share. In 2010,
it ventured into the US options market, and now
operates two options exchanges. The exchange
group is the largest destination for ETF trading
globally, and went public in April this year.
The acquisition for CBOE moves the exchange
group out of the confined space of the Chicago
derivatives scene and into new global product areas.
Certainly this mega-merger is set have significant implications for both companies. It puts
together two of the industry’s heavyweights under
the same roof, CBOE’s CEO Ed Tilly and Bats
Global Markets CEO Chis Concannon.
Concannon, who has run the exchange since
2010, has had to deal with larger rivals such as
NYSE and Nasdaq breathing down his neck.
Under the joint company, Tilly will continue to
serve as CEO with Concannon becoming president and chief operating officer.
It is important to note about the timing of this
deal. It comes following a flurry of M&A deals in
2016, with the London Stock Exchange Group
(LSEG) agreeing to merge with Frankfurt-based
exchange group Deutsche Boerse, as well as
Nasdaq acquiring Eurex’s US options exchange,
the International Securities Exchange (ISE) for
$1.1 billion. Furthermore the Singapore Exchange
completed its acquisition of the Baltic Exchange,
and ICAP agreed to sell its voice brokering busi-
ness to rival Tullett Prebon.
Prior to the announcement of the deal with Bats,
CBOE had made its own smaller moves to expand.
In October last year it became a minority stake-
holder in London’s new interest rate derivatives
venue CurveGlobal. Following that, it became a
minority equity stakeholder in Eris Exchange, a US
swaps-futures platform. Furthermore in September
this year it opened its European office in London.
The deal with Bats is significant as it now
makes CBOE exposed to Brexit. With Bats publi-
cally stating it could relocate its European base
from London to Paris if the UK is restricted from
accessing the European market.
However it certainly leaves some open ques-
tions about the opportunities and implications
the takeover will have on both sides. To fill in the
blanks, we sat down with CBOE Holdings chief
strategy officer and head of corporate initiatives,
John Deters, in Chicago to discuss the merger and
what we will expect from the joint-company.
Joe Parsons: Why is now the right time for
CBOE to expand with the Bats deal?
John Deters: When I think about timing with the
Bats deal, we were coming at it from the point of
view that both CBOE and Bats have strong growing
franchises and very healthy growth records, so we
asked, ‘what opportunities are there to accelerate the
strategies we have in place?’ CBOE came to the conclusion that Bats represented the best opportunity
to help us do that. We are aiming to complete the
acquisition in the first half of next year, subject to
shareholder and regulatory clearance and approval.