NEW YORK (BLOOMBERG) - CBOE Holdings is in talks to acquire Bats Global Markets, according to people familiar with the matter, just five months after the exchange operator went public in a long-awaited initial public offering.
A deal could be announced within weeks, though no final decision has been made and the talks may still fall apart, the people said. A spokeswoman for Bats declined to comment. A representative for Chicago-based CBOE didn't immediately respond to a request for comment.
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. The company has a market value of about US$5.6 billion.
Shares of Bats surged 24 per cent to US$33 as of 5:37 pm New York time.
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. Lenexa, Kansas-based Bats is the second-biggest exchange operator in US stocks, the biggest in European equities and last year got into the US$5.1-trillion-a-day currencies business.
A deal would unite two different corporate cultures. Bats, founded in 2005 by high-speed trader David Cummings of Tradebot Systems Inc, runs a lean operation driven by cutting-edge technology. CBOE, founded in 1973, still runs open-outcry trading pits in Chicago, a throwback to an era when humans instead of computers drove trading.
CBOE would reclaim its market-share lead in US options trading by purchasing Bats, edging out Nasdaq. CBOE's two exchanges plus Bats's 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.
Although Nasdaq surpassed CBOE in total trading with the acquisition, CBOE still holds the jewels of the options market: exclusive rights to contracts on the S&P 500 and VIX. Fierce price competition among exchanges has made most options trading less lucrative. Anyone who wants to buy or sell Apple Inc. contracts, for instance, has 14 markets they can turn to. Only CBOE can offer S&P 500 and VIX options.
Acquiring Bats would give CBOE a foothold in the fast- growing business of exchange-traded funds. Bats Chief Executive Officer Chris Concannon predicted this year that ETF assets will grow fivefold by 2026 from about US$2.7 trillion currently. CBOE already trades options linked to ETFs, but a deal with Bats would mean it could operate a venue for buying and selling the funds themselves, which trade like stocks.