CME Buying Nymex

In an entry here four months ago, I asked Who Wants to Buy Nymex?

At that time, the Chicago Mercantile Exchange was an unlikely candidate for that honor, because CME had just completed an acquisition of the long-time cross-town rival, the Chicago Board of Trade.

Now, though, the juices of digestion seem to have done their work, and CME is back at the table. Nymex is the new dish according to reports coming out. of the Futures Industry Association's annual meeting.

One new complication: the US Justice Department has in the meantime made some noise about how it would like to enhance the level of competition amongst exchanges.

But the antitrust division's focus isn't on horizontal issues (acquisition of one exchange by another) so much as it is on vertical issues (maintenance by an exchange of its own captive clearing corporation). It is of the opinion that if exchanges and clearing houses were separate, there'd be lots of new entrants, entrepreneurs would be starting up new exchanges faster than the older ones could merge with each other.

Or, in antitrust jargon, the vertical tie creates a barrier to entry.

Both the Nymex and the CME group have such a "captive exchange," which presumably will be merged as the mother corporations merge. If the merging parties have their druthers. Which may not be.

What I'm leading up to is a guess, or to be nicer to myself a speculation. The antitrust division MAY end up approving the merger of the exchanges only on the condition that they spin-off their clearing operation(s).

Just free-associating here ... members of the Democratic Party might see some hope for their own future in the very existence of CME/Nymex talks. After all, if two certain Senators -- one representing Illinois and one representing New York -- can kiss and make up, they'll have their dream ticket.

McCain simply represents the Justice Department merger review!