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The Brazilian Mercantile and Futures Exchange-BM&F SA and the CME Group, the controlling shareholder of the Chicago Mercantile Exchange Inc., announced the definitive terms related to the agreement signed between the two exchanges on October 23, 2007. The agreement includes, among other items, an order routing arrangement whereby BM&F will be able to distribute its products through CME Group’s electronic distribution network, which is connected to more than 80 countries, and the CME Group will be able to connect its network to BM&F’s electronic distribution system.
The agreement was approved by the Board of Directors of both exchanges, at their respective meetings held today in São Paulo and Chicago, and will be subsequently submitted to the approval of the BM&F shareholders.
In addition to the order routing arrangement, which will expedite BM&F’s insertion in the international marketplace and allow for an enhancement in foreign participation in its markets, thus resulting in increasing competitiveness and profitability, the CME Group and BM&F have also entered into a non-binding memorandum of understanding which includes:
- BM&F potentially becoming a “super-clearing” member of CME, providing access to brokers that lack independent arrangements with CME Group clearing members, in order to facilitate settlement procedures related to the transactions made by Brazilian investors with CME contracts;
- exclusivity of the investment and order routing services to BM&F by CME, which will not invest or provide order routing services to other exchanges located in Central and South America;
- CME Group providing management services to BM&F for the collateral pledged by foreign investors in the US;
- non-duplication of the products listed by the two exchanges;
- priority in the development of new derivatives contracts based on Brazilian securities by BM&F;
- joint efforts for the development and promotion of new products and commercial partnerships between the two exchanges.
Under the terms of this agreement, BM&F will acquire an equity stake in CME Group of 1,189,066 Class A common shares with voting rights, and the CME Group will become, through its affiliates, a BM&F shareholder by holding 101,078,580 shares. The agreement will subject both BM&F and the CME Group to a four-year lockup period for the trading of all these shares.
In order to implement this agreement which will be proposed to the shareholders, a company controlled by the CME Group in Brazil (CMEG 2) will merge with BM&F.
A ranking based on information published by the Futures Industry Association (FIA) for the period of January–September 2007 places the Chicago Mercantile Exchange as the world’s largest futures exchange, and BM&F as the fourth largest.
The details of this agreement were published by BM&F in a material fact announcement by its Investor Relations Office. To view the announcement in its entirety, please click here.
