CBOE Targets ETFs With $3.2B Deal for Bats

The deal combines CBOE's traditional trading pits with the electronic trading technology of upstart Bats to create a new exchange giant.
Matthew HellerSeptember 26, 2016

The operator of the Chicago Board Options Exchange has agreed to acquire tech-oriented upstart Bats Global Markets for about $3.2 billion in a move to expand into equities and foreign exchange trading.

CBOE Holdings created the first options exchange in 1973 and still uses trading pits. It will pay $32.50 a share in cash and stock for Bats, a 23% premium to the closing price on Thursday before media outlets reported a possible deal.

Bats was created in 2005 to provide an electronic trading alternative to the New York Stock Exchange and Nasdaq, growing into the second-largest U.S. stock exchange by shares traded. Its initial public offering in April raised about $290 million.

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“The acquisition of Bats is expected to strengthen our position as a global leader in innovative tradable products and services, and is a transformative next step in our growth strategy,” Edward T. Tilly, CBOE Holdings’ chief executive, said in a news release.

“In particular, we believe the complementary nature of our respective offerings uniquely positions the combined company to provide the product set, transparency and tradability demanded by the rapidly-developing index-based investing market,” he added.

As The Wall Street Journal reports, the deal “speaks to the growing importance … of exchange-traded funds and products, which generally track indexes and trade on exchanges” and “illustrates the rise of electronic trading and the decline of so-called ‘open outcry’ floor trading.”

CBOE is best-known for its Volatility Index, a measure of implied future stock-market volatility that is seen by many as the market’s “fear gauge.” “By combining, CBOE will expand into equities and foreign exchange and push its footprint into Europe, where Bats has a big presence,” Fortune noted.

The Chicago exchange recently opened a London office, while Bats is the largest stock exchange in Europe, amassing a 23% market share in August. The acquisition of Bats will push CBOE’s market capitalization to about $9 billion, near rival Nasdaq’s $11.5 billion value.

“CBOE needed a path to grow, and this deal gives them access to new asset classes, technology and global markets,” Spencer Mindlin, an analyst at Aite Group, told the WSJ.