CBOT Holdings (NYSE:BOT), the parent of the Chicago Board of Trade, released impressive first-quarter earnings today, which should no doubt please both of the feuding firms vying to buy it.
Courted by the Chicago Mercantile Exchange (NYSE:CME) and the InterContinental Exchange (NYSE:ICE) alike, there's little doubt that CBOT will wind up as a very attractive merger partner. For now, the exchange can bask in its independent strength. Record trading volume and higher average exchange-fee rates boosted revenues by 34% and profit by 58%. Prudent expense management helped increase operating margins, excluding merger-related costs, by 15%.
The CBOT's performance is particularly notable, because the exchange performed well thoughout its operations, via various means. Besides reaching record trading volume of 239.7 million contracts, volume increased in each major product category. Electronic trading jumped 42%, aided by the successful introduction of daytime electronic trading for agricultural futures. The segmentation of the exchange's pricing structure also contributed to an increase in the average rate charged per contract.
There's no reason to think that the future looks anything but bright for CBOT. Increased market volatility, which helps spur demand for derivatives, is a significant feature of global capital markets today. Treasury futures, the exchange's most actively traded contracts, have more than doubled in the past five years. Futures have become a significant portfolio-management tool, used to boost returns. If such growth continues, Treasury-futures trading will surpass that of the cash market within the next year.
Skeptics who believe the exchange is too dependent on its interest rate futures shouldn't underestimate the value of its other contracts -- encompassing stocks, metals, currencies, and grains -- or the general growing acceptance of engineered financial products. The CBOT is seeding growth with novel products: a new stock-index futures contract based on the Dow Jones Real Estate Index, a longer-term interest rate-swap futures contract, and plans to launch mini-sized electronic agricultural contracts next month.
CBOT's current share price reflects the competing bids by the CME and ICE. While the company is set to vote in early July on CME's more than $8 billion offer, accepted last October, it's also considering ICE's $9.8 billion bid from last month. As reported in The Wall Street Journal today, CBOT Chairman Charles Carey stated that price is only one determining factor. In light of today's earnings report, it's more likely that ICE may sweeten its offer to better compete against the CME's perceived upper hand in terms of operational and organizational structure. Meanwhile, CBOT shareholders can enjoy the courtship, secure in their company's fundamentals.
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Fool contributor S.J. Caplan does not own shares of the companies discussed in this article. The Fool has a disclosure policy.
