Chicago Mercantile Exchange Holdings Inc. and CBOT Holdings Inc. today announced they have signed a definitive agreement to merge the two organizations to create the most extensive and diverse global derivatives exchange.

The combined company, to be named CME Group Inc., a CME/Chicago Board of Trade Company, is expected to transform global derivatives markets, creating operational and cost efficiencies for customers and exchange members, while delivering significant benefits to shareholders. Corporate headquarters of the combined organization will remain in Chicago.

The combined company will provide one of the world’s most liquid marketplaces, with average daily trading volume approaching nine million contracts per day, representing approximately US$4.2 trillion in notional value. It will also provide customers efficient, global access to a wide array of benchmark exchange-traded derivatives based on U.S. interest rate yield curve, equity indexes, foreign exchange, agricultural and industrial commodities, energy and alternative investment products such as weather and real estate.

Under the terms of the deal, CBOT stockholders will have the right to receive 0.3006 shares of CME Class A common stock per share of CBOT Class A common stock (the exchange ratio) or to elect an amount in cash per share equal to the value of the exchange ratio based on a ten day average of closing prices of CME common stock at the time of the merger. The cash portion of the consideration is subject to a US$3 billion aggregate limit and will be subject to proration if cash otherwise payable would exceed that limitation.

If no stockholders elect to receive cash, stockholders of CME and CBOT would own approximately 69% and 31% of the combined company, respectively, and CME would issue approximately 15.9 million shares. Based on the closing stock prices of CME and CBOT on October 16, 2006, the last trading day prior to the announcement of the merger, the combined company is valued at US$25 billion (CME equity $18 billion; CBOT equity US$7 billion). The cash portion will be financed through cash on hand and debt financing, if necessary.

The combination is expected to be accretive to earnings in 12 to 18 months post close. The firms expect pre-tax cost savings of more than US$125 million beginning in the second full year following the closing.

When the merger is completed, Terrence Duffy, chairman of CME, will become chairman of the combined organization. Charles Carey, chairman of CBOT, will become vice-chairman of the combined organization. Craig Donohue, CEO of CME, will become CEO of the combined organization. Bernard Dan, CEO of CBOT, will remain in his current position focusing on overseeing CBOT’s activities, products, and customers until the transaction is complete, at which time he will serve as special advisor to the combined company for one year.

“We are very pleased to announce this strategic merger today,” said Duffy. “We have enjoyed a strong, productive relationship with CBOT for a number of years, including our historic clearing agreement in 2003 in which CME began clearing all CBOT trades. This merger takes us to the next level in the evolution of our high-growth business. We now will be able to combine the capabilities and best practices of both organizations — establishing an even stronger, more competitive position than either could achieve individually. I am personally very proud to have this opportunity to work so closely with our counterparts at CBOT to complete this momentous transaction for the benefit of our customers and shareholders.”

“This is a landmark agreement for our companies, our industry and the city of Chicago,” said Carey. “As a single entity, we will be the world’s premier financial marketplace in terms of product breadth, global reach and market capitalization and ensure that Chicago remains the center for risk management worldwide.”

“Growth in the global derivatives industry is accelerating and new competitors are emerging in exchange, over-the-counter and other unregulated markets,” said Donohue. “As a combined company, we will be better positioned to capitalize on these trends and compete more effectively as our industry continues to transform. We have consistently said that we would focus our merger and acquisition efforts on infrastructure cost savings opportunities in order to create value for our customers and shareholders. This merger will allow us to offer our diverse product set on the CME Globex trading platform and to facilitate all open outcry trading on CBOT’s trading floor, while clearing all transactions through CME Clearing. As a result, customers will benefit from the broadest range of distinct products, increased efficiencies and unsurpassed liquidity.”

@page_break@The transaction is expected to close by mid-year 2007, pending approvals by regulators, and shareholders of both companies and CBOT members, as well as completion of customary closing conditions.

The Futures Industry Association is applauding the proposed merger of CME and CBOT.

“This is a historic moment for the futures industry. Trading volume has been breaking records year after year as the world has come to realize the risk management benefits of exchange-traded derivatives. We know very well that the CME and the CBOT had to overcome many difficult hurdles to reach this landmark agreement, and we look forward to learning more about the details,” said FIA president John Damgard in a statement.

“Consolidation usually leads to greater efficiencies. We saw how beneficial common clearing was for the users of these markets, and there is no doubt that consolidating the CME and CBOT products onto a single trading platform could lead to additional cost savings,” he added. “In the coming days I am sure that our members will be weighing the implications of this proposed merger, and in particular the degree to which the expected benefits will accrue to the users of these markets as well as the shareholders.”

“Are there questions about the concentration of such a large share of futures trading on a single exchange? Yes, of course there are, and our members will be looking at that as will the regulators,” he allowed.

Meanwhile, the Chicago-based player that has been left out of today’s big derivatives exchange merger, the Chicago Board Options Exchange, nevertheless announced a record seat sale today.

The CBOE said that a seat, or membership, on the exchange, was bought this morning for US$1,425,000, setting a new record for seat prices at the exchange. The previous record seat price was set on August 15 with a trade of US$1.4 million.

The sale this morning was the fifty-first of the year and the thirty-eighth seat that was sold for at least one million dollars during 2006. The high price for a seat in 2005 was US$875,000.

Seats are bought and sold via CBOE’s membership department using an auction method in which bids and offers are submitted to the exchange on an “as-desired” basis. When a bid matches an offer, a sale is made.