When CME Group stock gapped up more than $16 on Tuesday there was little doubt it had to do with the exchange securing approval from the Department of Justice for its proposed purchase of the New York Mercantile Exchange (Nymex). The announcement came out just as the markets closed on Monday.
It was somewhat of a surprise because although the DOJ has caused CME some grief with its comment letter to Treasury regarding clearing structure, few suspected that they would raise an objection to a merger with Nymex. While there may have been an element of buyers remorse with the DOJ regarding its decision to “approve” (DOJ does not actually approve M&As, they either object or leave it alone) the CME/Chicago Board of Trade merger, CME Group’s proposed purchase of Nymex should have raised fewer issues than the CBOT deal that already had been allowed.
It seems to us that the recent weakness in CME stock has more to do with the noise coming out of Washington than the noise coming from Nymex members unhappy with the price tag of the CME Group definitive agreement with Nymex.
And given that Nymex would likely be more negatively affected by any restrictions on commodity index funds as a result of Congress’s determination to place blame for high energy prices, it is a fair assumption that CME Group stock, despite recent weakness, is holding up the value of Nymex, not pushing it down. Nymex’s largest contracts ,WTI light sweet crude oil and natural gas, account for close to half of the allocations from funds benchmarked to various commodity indexes, whereas CME’s largest products would be unaffected.
No one can know for sure as long as the two are linked, but if Nymex members, who will hold a special meeting next week with its board, manage to scuttle the current agreement, we see a scenario where they will have to come back to the Merc hat in hand. And if efforts to restrict allocations to commodity index funds get legs, they could be getting a much lower share of CME stock then what they are complaining about today.
However, the recent recovery in CME Group stock could satisy Nymex members.
Tags: CME Group, Department of Justice, Nymex
