CBOE 'in talks to buy exchange operator Bats'

NEW YORK • CBOE Holdings is in talks to acquire Bats Global Markets, according to people familiar with the matter, a deal that would combine a 43-year-old Chicago firm that still runs trading pits where humans buy and sell options with a fully electronic exchange.

"You're combining a premium product exchange with a scrappy upstart," said analyst Rich Repetto at Sandler O'Neill & Partners. "If both parties are motivated, they could merge because there are plenty of areas where they don't conflict or overlap."

A deal could be announced within weeks, though no final decision has been made, the people said.

A spokesman for Bats declined to comment. A representative of CBOE, founded in 1973, did not respond to a request for comment.

Buying Bats would push CBOE beyond options and related futures contracts, a niche business - albeit a profitable one for the company - compared with the areas where Bats operates.

Bats is the second-biggest exchange operator in US stocks, the largest in European equities and last year got into the US$5.1-trillion-a-day (S$7 trillion-a-day) currencies business.

The two companies have vastly different roots. Bats was founded in 2005 by high-speed trader David Cummings of Tradebot Systems, and its trading software is regarded as among the industry's best.

CBOE still runs open-outcry pits in Chicago, a throwback to an era when humans instead of computers drove trading - though it does also run the all-electronic C2 exchange.

Bats runs a relatively lean operation because it operates in commoditised businesses, whereas CBOE enjoys monopolies in two key products: S&P 500 and VIX options.

Bats went public in April, completing an IPO four years after an error with the exchange operator's own software foiled a first attempt to go public. Its shares are up 40 per cent since the listing, valuing the company at about US$2.6 billion.

The Chicago Board Options Exchange, CBOE's main market, is the largest US options exchange. Its market value is US$5.6 billion.

CBOE would reclaim its market share lead in US options trading by buying Bats, edging out Nasdaq. CBOE's two exchanges plus Bats' two options markets handle about 38 per cent of industry volume. Nasdaq, which bought three options markets from Deutsche Boerse this year, handles about 36 per cent.

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A version of this article appeared in the print edition of The Straits Times on September 24, 2016, with the headline 'CBOE 'in talks to buy exchange operator Bats''. Print Edition | Subscribe