Chicago Mercantile Exchange Holdings Inc. would favor a combination or alliance that helped generate cost savings, Chief Executive Craig Donohue said Thursday.

Meanwhile, his counterpart at the Chicago Board of Trade, Bernard Dan, said his exchange is focusing on developing products and services rather than expanding through mergers and acquisitions.

Speculation about mergers among U.S. and European bourses is increasing after Paris-based Euronext NV said last week that shareholders should accept a bid from NYSE Group Inc., which topped an offer from Germany's Deutsche Boerse AG.

Other major exchanges have been involved in merger talks in recent months, and officials at the Merc have said they want to grow through acquisitions.

"I'm not ruling anything out, but we have said we are focused on synergies," which are more easily generated with derivatives markets, Donohue said at a conference in Switzerland. "We tend to look at things that generate cost savings."

NYSE's purchase of Euronext might pressure the Merc to make an acquisition, and possible partners include the CBOT and Deutsche Boerse, analysts said.

But Dan, speaking at a conference in New York, said: "Our focus is primarily on organic growth, and I think that's where our greatest short-term and midterm opportunities are. If we identify opportunities that enhance the shareholder value for the Board of Trade, we will pursue that. And if not, our time and energy will be focused on organic growth."

On Thursday, CBOT said it will offer options that let investors bet directly on the Federal Reserve's target interest rate for overnight lending between banks, known as the fed funds rate. The contracts will start trading July 12 on the market's electronic trading system.

Known as binary options, they will pay out $1,000 if the investor bets correctly on the Fed's lifting, lowering or leaving alone the benchmark rate at regularly scheduled policymaking meetings. Investors get nothing if their bet is wrong.

"It's another way for guys to put their bets on the table, especially with a Fed that's got a lot of uncertainty surrounding it," said Todd Colvin, a Man Financial Inc. broker who trades options on fed fund futures at the CBOT.

The contract won't be available for the next meeting of the Fed's policymaking committee, scheduled for June 28-29.

The Merc, which talked with Euronext about a deal within the last two months, according to people familiar with the discussions, had $1 billion in cash at the end of the first quarter.

Among the sticking points in the talks with Euronext was the Merc's strategy of focusing solely on derivatives, rather than expanding the business to include stock trading.

Source: chicagotribune.com