The Chicago Board of Trade has announced plans to shift all of its clearing business to the neighbouring Chicago Mercantile Exchange, severing a 77-year relationship with the independent Board of Trade Clearing Corporation.
The decision on the common clearing link ends weeks of speculation about the Cbot's plans for its clearing business.
CME and CBOT already have 48 clearing firms in common and the consolidation of clearing under the CME's Clearing 21 platform is expected to deliver cost-savings to industry participants.
CME chairman Terry Duffy says the deal will add between $10 million and $15 million to CME 2004 full-year net income and incur $2 million to $4 million of development costs in 2003.
The new link between the two Chicago exchanges will be implemented in January 2004, coinciding with the arrival of stiff new competition in the US derivatives market from Swiss-German exchange Eurex. The screen-based Eurex this week signalled its ambitions when it recruited Michael McErlean, global co-head of futures services at Goldman Sachs, to head its US exchange business.
McErlean is a board member of the Brokertec Clearing Corporation, which already outsources some of its processing work to BOTCC. A deal between Eurex and the BOTCC - which stands to lose 82% of its revenues and its precious Triple AAA credit rating when the Cbot switches over to the new system - now appears inevitable.