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August 31, 2001

Exchanges Looking for Cash

By Colleen Marie O'Connor

Securities exchanges in the U.S. are still attracted by the lure of public liquidity - despite the tepid IPO market. One recent example is the Chicago Mercantile Exchange Inc. (CME).

In a filing with the Securities and Exchange Commission, the CME, the largest American futures exchange, said it would ask shareholders to vote on a planned reorganization into a holding company.

The exchange announced in June it had approved the formation of a holding company in preparation for its IPO.

"Whether or not we move forward with the IPO depends on many factors, including current market conditions and our operating performance relative to comparable companies," the Chicago Mercantile Exchange said in the filing.

"Ultimately, the determination of whether to proceed with an IPO, or the timing of an IPO, will be made by our board of directors with the advice of our underwriters," the CME added.

Shareholder Meeting

At press time, no date was set for a shareholder meeting, or for the proposed public offering.

However, transfer restrictions enclosed in the filing expire if the public offering does not take place by July 15, 2002.

The exchange hosts trading activity for futures, and futures options on agricultural products, currencies, indices and interest rates.

The CME filing follows the bid by the National Association of Securities Dealers for a public offering of its Nasdaq Stock Market.

With no other exchanges traded publicly, the NASD has had to jump through a series of hoops to solidify an offering, which is expected next year, depending on market conditions.

On Jan.18, the NASD completed the second phase of a private placement of common stock and warrants in a restructuring plan to broaden Nasdaq ownership.

The NASD, which once held 100 percent ownership of the exchange, now has a 40 percent ownership stake in line with the restructuring.

According to the CME's filing, its restructuring for a public offering takes a different path than Nasdaq's. The CME plans a merger and a reverse stock split, both subject to shareholder approval.

For example, current holders of Class A common stock would receive shares in the new CME Holdings Inc., the creation of which would stem from a merger of the CME and one of its subsidiaries.

Unlike the relatively recent Nasdaq stock market, the CME dates from 1898 when it was the Chicago Butter and Egg Board. It evolved into the Chicago Mercantile Exchange in 1919.

Colleen Marie O'Connor is an associate editor at the IPO Reporter, published by Venture Economics, a Thomson Financial Company.