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ICE, NYSE Deal May Open Agriculture Business to Rivals

ICE plans to spin off thriving Paris-based agricultural commodity contracts and may also have to sell London soft commodity contracts if its acquisition of NYSE Euronext goes through.

LONDON -- ICE plans to spin off thriving Paris-based agricultural commodity contracts and may also have to sell London soft commodity contracts if its acquisition of NYSE Euronext goes through.

Analysts and dealers said CME Group, which is already the dominant exchange in agricultural commodities, is likely to be interested in acquiring the Paris markets, which would provide regional diversification, and that interest is also likely from Asian exchanges.

ICE announced in December it had agreed to buy NYSE Euronext for $8.2 billion.

The Atlanta-based exchange has said it plans an initial public offering of NYSE Euronext's equities and derivatives businesses that are based in continental Europe after the acquisition is completed in the second half of this year.

A source with direct knowledge of ICE's plans confirmed this week that the exchange provisionally planned to keep the cocoa, coffee and sugar contracts but that Paris-based agricultural commodity markets would be included in the IPO.

"My guess is that if they spin it (Paris grains) off, the CME would like to have it, but then we do have a competition problem and they may not be allowed to take it for having too big a share in the market," said James Dunsterville, head analyst with Geneva-based Agrinews.

"I don't think anybody in the industry would necessarily complain if the CME took it over," he added.

CME Group, through its Chicago Board of Trade subsidiary, has long provided the global benchmark for prices of grains and oilseeds with its contracts for corn, wheat, soybeans, soybean oil and soybean meal.

A CME spokesman said the exchange does "not comment on any rumours or speculation about any M&A activity".

Trading volumes of the Paris-based milling wheat futures contract on NYSE Liffe jumped to 7.47 million contracts last year, up 31 percent from 2011.

"I think we can expect the same kind of very strong growth continuing (in 2013)," Nick Kennedy, head of business development, commodity derivatives at NYSE Liffe, said in an interview last month.

"We can see us actually catching up Chicago in the next five to 10 years. We are looking to be a very serious contender for first position in terms of global wheat benchmark."

MONOPOLY WORRIES

Concerns that ICE's acquisition of NYSE Euronext may give ICE too dominant a role in cocoa, sugar and coffee derivatives trading could also lead to the sale of those contracts.

Traders and brokers on NYSE Liffe soft agricultural commodity markets met last week to discuss fears the takeover might create a near monopoly and hike trading fees, sources who were present said.

ICE already has U.S.-based contracts in raw sugar, arabica coffee and cocoa, and the acquisition would add London-based markets in white sugar, robusta coffee and cocoa.

The source with knowledge of ICE's plans downplayed any overlap.

"If you look at the products, they are really different," the source said. "I think there are participants in the market who would like to be able to dictate a bit more what goes on in the market, and so they are making a bit of noise."

The source said, however, that if competition concerns are raised by regulators, ICE would take any action needed to make sure the deal is not slowed down, given that these contracts represent a small part of the business.

Analysts and traders also said Asian exchanges, including Hong Kong Exchanges and Clearing which last year acquired the London Metal Exchange, could be interested in acquiring agricultural contracts.

"The agricultural derivatives activity of the Matif (Paris grain futures) ... would be of interest to exchanges that want to pursue their regional diversification around the world, both U.S. and also Asian exchanges," said Jean Cordier, a professor at French food and agriculture university Agrocampus Ouest.

A Hong Kong Exchange spokeswoman said it had "no specific plans" related to the agricultural commodities contracts in question.

Copyright 2010 by Reuters. All rights reserved.

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