Now that the $11.3 billion merger between the Chicago Mercantile Exchange (CME) and CBOT Holdings is a done deal, industry sources are speculating about the CME Group’s next acquisition. And while the Intercontinental Exchange raised its profile during the bidding battle, it missed out on the CBOT, and now it may need to merge with another exchange operator that wants to expand its derivatives business. Given the reality that consolidation of exchanges is moving like a tornado on steroids, it’s logical that the new combined company, CME Group, a CME/CBOT company, would be considering its next target. “Once they digest this merger, it would not surprise me if they go after another acquisition,” comments Michael Henry, senior executive in Accenture’s Capital Markets Practice who believes that it should be an international exchange.

In Monday’s press release announcing shareholder approval, “They mentioned the word ‘global' about 15 times in their press release, which is interesting for an exchange (located) in Chicago,” says Henry.

Looking ahead to the next five to ten years, Henry thinks the market for exchanges will be dominated by three or four players that are engaged in cash, derivatives and fixed income and may have captured some of the OTC market.

So which exchange should CME Group go after? Henry says, “The two big things they don’t have now are an international presence and the cash market.”

I think the new CME Group should make an offer for the London Stock Exchange (LSE) – to get a foothold in the cash market and arguably one that is the premier exchange for international stocks. But there are some problems there. The LSE has already rebuffed The Nasdaq Stock Market. According to the Financial Times yesterday, Nasdaq is trying to derail the LSE’s purchase of Borsa Italiana. Nasdaq, which owns a 30 percent stake in the LSE, has blocked a proposal this week that would have allowed the LSE to issue new shares to purchase the Italian bourse. Tired of waiting for the LSE, Nasdaq announced a proposed merger with Scandanavian exchange operator OMX.

Since CME has a high share price (the stock closed at $583.74 today), it has a lot of currency to acquire things which will be necessary if it's to compete on the scale of an NYSE Euronext, suggests the consultant.

But in order to pursue another acquisition, CME Group first needs to digest the merger with CBOT, insists Henry. If they are fixing their sites on markets like Eurex and Liffe, they really have to get stable home base and get the cost savings so they can be competitive,” says the consultant. CME originally talked about $125 million in savings.

One of the reasons that CBOT shareholders rejected the ICE’s offer was that the risk of integration was higher than with the Merc. “They see a challenging piece of work,” says Henry, adding that CME-CBOT only need to look at NYSE Euronext Group, where four exchanges (NYSE Arca, NYSE Hybrid, Liffe and Euronext) are still on four separate platforms, says Henry. “Making these mergers work is a clear success factor for the future,” he says.

But the pace of technology integration has not stopped NYSE Euronext from considering other acquisitions too. Yesterday, NYSE Euronext stock (NYX) jumped on speculation that it was gearing up for a takeover of the ICE. Check out
Yahoo’s message board where there is plenty of chatter today ranging from “NYX bidding for ICE this weekend”, to “Will CME bid for ICE?”

Though ICE has lost out on acquiring CBOT, the electronic energy exchange has raised its own profile as a potential acquisition target. Rumors are flying that either NYSE Euronext or NYMEX could capture it as their next prey.

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