CBOE, the US exchange best known for the Vix volatility indices, is in talks to purchase smaller rival Bats Global Markets in a deal that underscores consolidation sweeping through the US options industry, people briefed about the negotiation said.
A potential deal, which would come less than six months after Bats went public, would be by far the largest undertaken by Chicago-based CBOE, which has for years lived with speculation linking it to a combination with its city rival CME Group.
It is unclear at what stage the talks are presently but one person familiar with the matter cautioned that the negotiation could still fall apart or another player could come up with a rival bid.
Shares in Bats, which listed in April this year after having botched a listing four years earlier, rose about 25 per cent in post trading hours after Bloomberg first reported the talks.
Bats and CBOE declined to comment.
If a deal was concluded, it would create an exchange that competes in futures and options, equities, exchange traded funds and foreign exchange.
Bats’s European operations run one of the continent’s largest exchanges. The two also have contrasting corporate cultures: Bats has made technology the centre of its operations while CBOE runs one of US’s few remaining open outcry pits, where traders shout across a room to make deals.
The deal talks come only months after Nasdaq stole a march on rivals with $1.1bn bid to buy the International Securities Exchange from Deutsche Börse, the German exchange.
The move meant Nasdaq leapt past CBOE to become the biggest operator in a field of 14 exchanges, with a 40 per cent market share. Bats, which also operates options exchanges, has a market share of around 10 per cent.
It also left CBOE as the only options exchange operator that did not own a cash equities market. Bats is the US’s second-largest share trading exchange, with around a fifth of the average daily market volume.
The number of options exchanges in the US has soared in recent years with operators catering to the specific needs of options traders, such as speed or price or the priority of the trade.
Earlier this year Bats unveiled plans to undercut CBOE’s hugely successful Vix volatility indices with its own data. The Vix has become so pervasive and popular with investors that it is sometimes known as Wall Street’s “fear gauge”.