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The Chicago Mercantile Exchange maintained on Tuesday that its high-margin business model was sustainable, in spite of grumblings from some users that a planned merger with the Chicago Board of Trade would give it monopoly pricing power.

The largest US derivatives exchange reported record sales and profits as it pumped higher volumes through its electronic platform. It said the CBOT deal was on track to close by mid-year, subject to shareholder and regulatory approval.

Craig Donohue, chief executive, said: “This is a very cheap place to do business.”

Mr Donohue added that there had been “tremendous enthusiasm” for a deal, which he said would provide $70m a year in savings to customers.

“I don’t think this has been a hard sell in terms of the vast majority [of our customers],” he told the Financial Times.

However, industry groups such as the Futures Industry Association have failed to adopt a common position on the planned deal. Some large customers continue to complain in private about the potential power of an enlarged business accounting for 90 per cent of exchange-traded derivatives in the US.

Critics point to the CME’s pre-tax margin, which rose from 54 per cent to 58 per cent in the fourth quarter to December 31 as net profits increased from $76.3m to a record $102.6m. The strong performance pushed the CME’s market value above $20bn last week.

Mr Donohue said group profitability, with incremental margins of 74 per cent in the final quarter, would continue as the CME expanded its offerings in the over-the-counter market, notably in foreign exchange.

“It’s very sustainable,” he said of the continued margin expansion. But some large banks and inter-dealer brokers say innovation in the market will lead to the creation of alternative trading mechanisms to circumvent the CME platform at a lower cost.

Mr Donohue said competition in the derivatives market was increasing as the exchange-traded and OTC markets converge.

He remained confident that the proposed merger would secure approval from the Justice Department, which has focused on the CME’s dominant role in clearing exchange-traded derivatives deals.

The CME’s own expansion of OTC clearing will see the launch next month of live trading on FXMarketspace, a joint venture with Reuters targeted at taking a slice of the $2,000bn a day foreign exchange market.

Copyright The Financial Times Limited 2017. All rights reserved.
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