Filed by Chicago Mercantile Exchange Holdings, Inc. pursuant
to Rule 425 under the Securities Act of 1933, as amended, and
deemed filed pursuant to Rule 14a-12 under the Securities
Exchange Act of 1934, as amended.
Subject Company: CBOT Holdings, Inc.
Subject Company’s Commission File No.: 001-32650
This material is not a substitute for the prospectus/proxy statement and any other documents CME and CBOT intend to file with the Securities and Exchange Commission (SEC). Investors and security holders are urged to read such prospectus/proxy statement and any other such documents, when available, which will contain important information about the proposed transaction. The prospectus/proxy statement would be, and other documents filed or to be filed by CME and CBOT with the SEC are or will be, available free of charge at the SEC’s Web site (www.sec.gov) or from Chicago Mercantile Exchange Holdings Inc., Shareholder Relations and Membership Services, 20 South Wacker Drive, Chicago, Illinois 60606, Attention: Beth Hausoul.
CME and its directors, executive officers and other employees may be deemed to be participants in the solicitation of proxies in connection with the proposed transaction. Information about CME’s directors and executive officers is available in CME’s proxy statement, dated March 10, 2006, for its 2006 annual meeting of stockholders. Additional information about the interests of potential participants will be included in the prospectus/proxy statement when it becomes available. This document shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended.
The following is a presentation that CME plans to use in connection with the proposed merger from time to time.
 * Name
effective upon transaction closing. |
 2 Copyright Chicago Mercantile Exchange Inc. All rights reserved. Discussion of Forward-Looking Statements Statements in this news release that are not historical facts are forward-looking statements.
These statements are not guarantees of future performance and involve risks,
uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. Among the
factors that might affect our performance are: increasing competition by foreign and
domestic competitors, including new entrants into our markets; our ability to keep pace with rapid technological developments, including our ability to complete the development and implementation of
the enhanced functionality required by our customers; our ability to continue
introducing competitive new products and services on a timely, cost-effective basis, including through our electronic trading capabilities, and our ability to maintain the competitiveness of our existing products and services; our ability to adjust our fixed costs and expenses if our revenues decline; our ability to continue to realize the
benefits of our transaction processing services provided to third parties; our ability
to maintain existing customers and attract new ones; our ability to expand and offer our products in foreign jurisdictions; changes in domestic and foreign regulations; changes in government policy, including policies relating to common or directed clearing; the costs associated with protecting our intellectual property rights and our ability to operate our business without violating the intellectual property rights of others; our ability to generate revenue from our market data
that may be reduced or eliminated by the growth of electronic trading; changes in our
rate per contract due to shifts in the mix of the products traded, the trading venue and the mix of customers (whether the customer receives member or non-member fees or participates in one of
our various incentive programs) and the impact of our tiered pricing structure; the
ability of our financial safeguards package to adequately protect us from the credit risk of our clearing firms; changes in price levels and volatility in the derivatives markets and in underlying
fixed income, equity, foreign exchange and commodities markets; economic, political and
market conditions; our ability to accommodate increases in trading volume without failure or degradation of performance of our systems; our ability to execute our growth strategy and maintain
our growth effectively; our ability to manage the risks and control the costs
associated with our acquisition, investment and alliance strategy; industry and customer consolidation; decreases in trading and clearing activity; the imposition of a transaction tax on futures and options on futures transactions; and seasonality of the derivatives business. More detailed information about factors that may
affect our performance may be found in our press release for the merger and our filings
with the Securities and Exchange Commission, including our most recent Quarterly Report
on Form 10-Q, which is available in the Investor Information section of the
CME Web site. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or
otherwise. Additional Information This material is not a substitute for the prospectus/proxy statement and any other documents CME
and CBOT intend to file with the Securities and Exchange Commission (SEC).
Investors and security holders are urged to read such prospectus/proxy statement and any other such documents, when available, which will contain important information about the proposed
transaction. The prospectus/proxy statement would be, and other documents filed
or to be filed by CME and CBOT with the SEC are or will be, available free of charge at the SEC’s website (www.sec.gov) or from CME by directing a request to CME, 20 South
Wacker Drive, Chicago, IL 60606, Attention: Shareholder Relations, or from CBOT by
directing a request to 141 West Jackson Boulevard, Chicago, IL 60604, Attention: Investor Relations. CME, CBOT and their respective directors, executive officers and other employees may be deemed to be participants in the solicitation of proxies from the security holders of CME or CBOT in connection with the proposed transaction.
Information about CME’s directors and executive officers is available in
CME’s proxy statement, dated March 10, 2006, for its 2006 annual meeting of stockholders, and information about CBOT’s directors and executive officers is available in CBOT’s proxy statement,
dated March 29, 2006, for its 2006 annual meeting of shareholders. Additional
information about the interests of potential participants will be included in the prospectus/proxy statement when it becomes available. This document shall not constitute an offer to sell or the solicitation of
an offer to buy any securities, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except
by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities
Act of 1933, as amended. NOTE: Unless otherwise noted, all references to CME volume, open interest and rate per contract information in the text of this document exclude CME’s non-traditional TRAKRSSM products, for which CME receives significantly lower clearing fees of less than one cent per
contract on average, as well as CME Auction Markets™ products. |
 3 Copyright Chicago Mercantile Exchange Inc. All rights reserved. List of slides 20 Product innovation is the hallmark of derivatives 19 Technology Innovation - Monthly Globex ADV 18 Recent Merger Activity - Stated Rationale 16 Investment Banks’ Consortia Involvement 15 Clearing members are global 14 Futures markets are global, not just domestic 13 Exchange-traded derivatives statistics 12 Global derivatives market shares 11 Growth of European exchange-traded derivatives 10 On-Exchange trading across markets 9 Derivatives market growth and size 8 CME/CBOT will be a platform for Innovative Growth 7 Significant User Benefits: Continuing Clearing Synergies 6 Significant User Benefits 5 CME/CBOT Merger Benefits 4 CME/CBOT merger is a landmark transaction # Slide 22 Potential for competitive entry and expansion 32 Recent Merger Activity – Stated Rationale, Detailed Additional Information 31 Conclusion 30 At Issue - Control 29 3 Pillars - Financial Integrity 28 3 Pillars – Transparency 27 3 Pillars - Innovation 26 CFTC Roundtable Notes from past comments on fungibility to the CFTC 24 Declining trading rates per contract 22 New product volume from derivatives exchanges 21 New product listings from derivatives exchanges # Slide |
 4 Copyright Chicago Mercantile Exchange Inc. All rights reserved. CME/CBOT merger is a landmark Transaction Combination will establish the world’s most diverse global exchange and provide significant value to CME’s and CBOT’s customers and shareholders • Solidifies combined company’s status as the premier global exchange • Expands presence in attractive derivatives markets • Positions combined company for continued growth • Creates operational and cost efficiencies for customers • $125+ million in estimated annual cost savings expected to be achieved year two post closing • Expected to be accretive to earnings 12 – 18 months post close • Potential revenue opportunities • Enhances operating efficiencies Strategically Attractive Financially Compelling |
 5 Copyright Chicago Mercantile Exchange Inc. All rights reserved. CME/CBOT Merger Benefits Well-Positioned in Dynamic, Competitive Global Industry Stronger Base to Build Core Derivatives Business Accretive Transaction Platform for Product Innovation and Growth Substantial Benefits Transaction expected to create value for shareholders of both companies Synergy Opportunities Significant User Benefits |
 6 Copyright Chicago Mercantile Exchange Inc. All rights reserved. CME and CBOT customers will benefit from increased scale, liquidity, product diversification and functionality Significant User Benefits Creates operational and cost efficiencies for market users • Access to distinct products and services on an integrated platform • Broad pipeline of innovative new products and functionality • Efficiencies through integrated systems and combined open-auction trading environment • Seamless continuation of current clearing services, which secures existing margin benefits for customers |
 7 Copyright Chicago Mercantile Exchange Inc. All rights reserved. • CME/CBOT clearing agreement Announced in April 2003 Fully operational in January 2004 • Clearing agreement provides substantial savings for our clearing firms and their customers $1.6 billion decrease in performance bonds for users $200 million decrease in security deposits for clearing firms Combined risk capital pool and generated other operational efficiencies Significant User Benefits: Continuing Clearing Synergies |
 8 Copyright Chicago Mercantile Exchange Inc. All rights reserved. + CME/CBOT will be a platform for innovative growth The combined company provides a strong platform for bringing innovation, broader access and efficiencies to traditional Over-The-Counter markets CME Clearing 360 Credit Derivatives Alternative Markets •OTC Cash FX trading - $2 trillion in daily turnover •FXMarketspace FX cash and swaps clearing •Interest rates swaps clearing •Trading and clearing for the $20 trillion (outstanding) OTC credit derivatives market •Trading and clearing of weather, real estate, and economic indexes commonly traded in OTC markets •The $250 trillion (outstanding) interest rate swaps market |
 9 Copyright Chicago Mercantile Exchange Inc. All rights reserved. Derivative market growth and size OTC derivatives markets are much larger and growing faster than exchange-traded derivatives $- $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 Dec. 2001 Dec. 2003 Dec. 2005 Total Value Outstanding Positions (measured in notional value as of year-end)
Exchange Traded OTC CAGR 01-05 OTC – 27% Exchange Traded – 25% |
 10 Copyright Chicago Mercantile Exchange Inc. All rights reserved. Global Equity Market 87% 13% Off-Exchange On-Exchange Average Daily Volume Global Derivatives Market 17% 83% On-Exchange Off-Exchange *Sources:Accenture (“Story Waters Ahead: Stock Exchanges are Heading Towards a Turbulent Future”); BIS, NASD/TRACE,WFE On-Exchange trading across markets Equity markets and derivatives differ significantly - equity exchanges compete with other equity exchanges while derivatives exchanges compete with the larger OTC/Off-exchange markets |
 11 Copyright Chicago Mercantile Exchange Inc. All rights reserved. Growth of European exchange-traded derivatives Relative Volume Market Shares between the US and Europe of Exchange-Traded Futures Products 57% 46% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% CME, CBOT, and NYMEX combined volume market share Euronext, Eurex, LIFFE combined volume market share |
 12 Copyright Chicago Mercantile Exchange Inc. All rights reserved. Global derivative market shares Regional Market Shares Exchange-Traded Futures and Options on Futures (Volume) US Exchanges 28% International Exchanges 72% Regional Market Shares Exchange-Traded Derivatives (Notional Value) North America, 56% Europe, 37% Asia , 7% All Other Places, 1% Non-US exchanges have substantial market share and room for growth, given Asia’s small share (in notional value) *Source: FIA *Source: BIS |
 13 Copyright Chicago Mercantile Exchange Inc. All rights reserved. Exchange-traded derivatives statistics Top 20 Derivatives Contracts by Volume In millions of contracts* Contract Jan-Jun 2006 Jan-Jun 2005 % Change
• Kospi 200 Index Options, KRX 1,208.70 1,069.42 13.0% • Eurodollar Futures, CME 244.63 207.85 17.7% • Euro-Bund Futures, Eurex 173.30 163.69 5.9% • TIIE 28-Day Interbank Rate Futures, Mexder 143.30 66.33 116.0% • Eurodollar Options, CME 140.41 92.62 51.6% • E-mini S&P 500 Index Futures, CME 129.45 100.63 28.6% • 10-Year T-Note Futures, CBOT 124.92 113.55 10.0% • DJ Euro Stoxx 50 Index Futures, Eurex 108.36 66.63 62.6% • Euribor Futures, Euronext.liffe 101.78 85.10 19.6% • Euro-Bobl Futures, Eurex 92.71 84.12 10.2% *excludes contracts based on individual equities *Source: FIA |
 14 Copyright Chicago Mercantile Exchange Inc. All rights reserved. Futures markets are global, not just domestic • Eurex/EurexUS Currency futures Russell 1000 Treasury futures • Euronext Eurodollar Japanese Government Bond 3 Month Euroyen Tibor • Nymex Brent Crude Oil • ICE/IPE WTI Crude Oil • CME Nikkei 225 (Yen based) Euroyen E-Mini S&P Asia 50 E-Mini MSCI EAFE Non-US dollar fx cross rates • CBOT Bund, Bobl, Schatz • SGX Eurodollar Nikkei 225 Japanese Government Bond Euroyen Tibor and Euroyen Libor S&P CNX Nifty Index Futures exchanges compete in domestic and international markets |
 15 Copyright Chicago Mercantile Exchange Inc. All rights reserved. Clearing members are global The largest clearing firms are members of many exchanges/ clearing houses - capable of providing clearing services globally, for many derivative products UBS Morgan Stanley Merrill Lynch Man Financial Lehman Brothers J.P. Morgan HSBC Goldman, Sachs Fimat Deutsche Bank Citigroup Bear, Stearns Barclays Banc of America ABN AMRO SFE SGX JSCC Eurex LCH CCorp DTCC NYCC NYMEX OCC CME FIRM International Domestic Sources World’s CCP Org.; Web sites; Annual Reports SGX -Singapore Exchange SFE - Sydney Futures Exchange OCC - Options Clearing Corporation NYCC - New York Board of Trade Clearing Corporation DTCC - Depository Trust Clearing Corporation LCH - London Clearing House CCorp - The Clearing Corporation JSCC - Japanese Securities Clearing Corporation |
 16 Copyright Chicago Mercantile Exchange Inc. All rights reserved. Investment Banks’ Consortia Involvement EBS 1 FXAll BrokerTec¹ BrokerTec Futures² Creditex EuroMTS ICE MarketAxess Mark-it Partners Swapswire TradeWeb³ Bank of America Bear Stearns Citibank Credit Suisse Deutsche Bank Goldman JP Morgan Lehman Brothers Merrill Lynch Morgan Stanley UBS 1 Sold to ICAP 2 Sold to Eurex 3 Sold to Thomson Corporation Foreign Exchange Fixed Income |
 17 Copyright Chicago Mercantile Exchange Inc. All rights reserved. Investment Banks’ Consortia Involvement Phil. Stock Exch. Chicago Stock Exch. ISE Stock Exch. Boston Equities Exch. National Stock Exch. Arca¹ Brut Project Turquoise Bank of America Bear Stearns Citibank Credit Suisse Deutsche Bank Goldman JP Morgan Lehman Brothers Merrill Lynch Morgan Stanley UBS 1 Sold to NYSE Equities |
 18 Copyright Chicago Mercantile Exchange Inc. All rights reserved. Recent Merger Activity – Stated Rationale Exchange Transactions Acquiror Target Stated Rationale Source CME CBOT Scale Breadth of products Cost synergies 10/17/06 CME Press Release ICE NYBOT Revenue and cost synergies Complementary customer base New market access Electronification of NYBOT products 9/14/06 ICE Press Release NYSE Euronext Scale Product diversity Cost and revenue synergies Common vision Minimal regulatory risk 5/21/06 NYSE Press Release NASDAQ LSE Creates global equity platform Natural marketplace for international issuers Scale Cost synergies 3/10/06 NASDAQ Press Release IDB Transactions Acquiror Target Stated Rationale Source Collins Stewart Chapdelaine Increased North American presence Increased credit derivative exposure 10/27/06 Collins Stewart Press Release GFI Amerex Broadens product offering into energy 9/7/06 GFI Press Release Creditex CreditTrade Scale Combines electronic and voice brokerage 7/25/06 Creditex Press Release ICAP EBS Cost synergies Expands presence in FX 4/21/06 ICAP Press Release |
 19 Copyright Chicago Mercantile Exchange Inc. All rights reserved. 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400 2,600 2,800 3,000 3,200 3,400 3,600 3,800 4,000 4,200 4,400 4,600 4,800 Technology Innovation – Monthly CME Globex ADV Speed Upgrade Remote Data Center Implied Spreads Performance Upgrade Capacity Upgrade Speed Upgrade Capacity Upgrade Flexibility Upgrade Reliability Upgrade Implied Spread Enhancements 2003 2002 2001 2006 2004 (round turns, in thousands) Eurodollars on CME GLOBEX – New Initiatives 2005 CME Eurodollar Implied Butterfly Spreads New equity option spreads/ RFQ functionality CME Eurodollar algorithm enhancement 4,022 Options Functionality Enhancements Nov 06 |
 20 Copyright Chicago Mercantile Exchange Inc. All rights reserved. Product innovation is the hallmark of derivatives • CME innovations Cash-settled contracts like S&P 500 Index Futures and Eurodollar futures Mutual offset between CME and SGX TRAKRS futures contracts with Merrill Lynch Long-dated index futures contracts that can be held through a securities account Goldman Sachs Commodity Index Excess Return (GSCI ER) Long-dated index futures that are components of a trust and basis for a listed security Rolling Spot FX futures contracts Derivatives contract designed to mimic the FX cash market Credit derivative futures Recently developed event future contracts • In the OTC market Interest Rate swaps and swaptions Credit derivatives - individual and indexes Structured products like asset backed securities |
 21 Copyright Chicago Mercantile Exchange Inc. All rights reserved. New product by futures exchanges listings … • CME leads the pack with 106 new contracts listed 1999-2005 • A “listing” for these purposes is a line item on FIA Volume Reports … although one may count differently than FIA • E.g., FIA clusters all CME weather contracts as single line item Source: FIA Volume Reports 106 17 21 13 26 4 10 15 Total 23 5 5 3 3 0 2 5 Options 83 12 16 10 23 4 8 10 Futures CME 94 24 10 17 15 14 2 12 Total 35 11 3 5 7 5 1 3 Options 59 13 7 12 8 9 1 9 Futures EUREX 38 1 3 5 4 8 3 14 Total 14 1 2 2 0 3 1 5 Options 24 0 1 3 4 5 2 9 Futures LIFFE 31 2 5 5 5 10 4 0 Total 3 0 0 2 1 0 0 0 Options 28 2 5 3 4 10 4 0 Futures CBOT Total 2005 2004 2003 2002 2001 2000 1999 New product listings from derivatives exchanges |
 22 Copyright Chicago Mercantile Exchange Inc. All rights reserved. 112,341,228 100,523,137 75,040,886 56,876,506 33,383,015 11,365,924 863,543 CME ex TRAKRS 154,800,308 118,679,191 94,961,328 66,658,188 33,383,015 11,365,924 863,543 CME 22,626,167 23,121,026 26,133,088 22,408,485 23,812,255 5,727,592 2,422,103 EUREX 59,128,132 66,816,611 66,637,940 39,933,392 27,424,133 8,624,390 6,425,221 LIFFE 33,536,806 28,520,086 14,376,567 3,720,135 1,339,423 1,334,373 0 CBOT 2005 2004 2003 2002 2001 2000 1999 New product volume of representative exchanges … Source: FIA Volume Reports New Product (Futures & Options) Volume by Exchange 0 20,000,000 40,000,000 60,000,000 80,000,000 100,000,000 120,000,000 140,000,000 160,000,000 1999 2000 2001 2002 2003 2004 2005 CBOT LIFFE EUREX CME CME ex TRAKRS New product volume from derivatives exchanges |
 23 Copyright Chicago Mercantile Exchange Inc. All rights reserved. Potential for Competitive Entry and Expansion Constrains Pricing • The threat of groups of large customers shifting trading volumes to alternate exchanges disciplines exchange pricing. Select large customers account for a sizeable share of trading for major CME and CBOT contracts and can create new exchanges for high volume contracts. The Commodity Futures Modernization Act of 2000 simplified the regulatory approval process. • Exchanges have entered and competed to attract liquidity. Intercontinental Exchange (ICE) was formed by a collection of major dealers in 2000 and acquired the IPE exchange in 2001. It is now the second largest energy futures exchange. NYSE has stated its intention to expand into futures exchange business. • Exchange and clearing facilities are readily available Electronic platforms are available from third parties, including LIFFE’s CONNECT
platform and OM’s Click platform. Clearing services can be organized by a consortium of customers and are available from such third parties as Eurex Clearing AG, LCH, New York Clearing Corp., OM, Options Clearing Corp., NYMEX, and The Clearing Corporation. Both clearing and electronic trading platforms are highly scalable and can be expanded rapidly. CME effectively doubled the size of its clearing operation after taking on CBOT’s clearing function. Trading on additional commodities can be readily added to existing trading platforms.
|
 24 Copyright Chicago Mercantile Exchange Inc. All rights reserved. IR Globex Futures ADV and RPC Rolling 3 Month Avg $0.500 $0.650 $0.800 $0.950 $1.100 $1.250 $1.400 $1.550 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 IR Globex ADV IR Globex RPC Declining trading rates per contracts |
 Notes from past
comments on fungibility to the CFTC |
 26 Copyright Chicago Mercantile Exchange Inc. All rights reserved. CFTC Roundtable • In 2002 CME participated in a CFTC Roundtable discussion of fungibility Through a written statement submitted in August 2002 Through a presentation to the CFTC later that fall • CME’s comments focused on 3 pillars distinguishing futures exchanges that proscribed fungibility would undermine Innovation Liquidity, open access and price transparency Financial integrity |
 27 Copyright Chicago Mercantile Exchange Inc. All rights reserved. 3 Pillars - Innovation • Diversity of futures contract designs Securities exist independently and apart from securities exchanges … stock options were standardized by Put and Call Dealers Association before 1972 introduction of CBOE BUT … futures are “constructed products” that do not exist apart from futures exchange – invoking intellectual property issues Futures exchanges attempt to add unique value – products are rarely generic, e.g., agencies, swaps • Innovation key to exchange value proposition and growth Enforced or proscribed fungibility stifles new product innovation At worst, it begs question – why innovate? |
 28 Copyright Chicago Mercantile Exchange Inc. All rights reserved. 3 Pillars - Liquidity • Liquidity and price transparency Futures only have utility if they offer enhanced liquidity relative to cash or derivative market solutions But … “liquidity as elusive as it is vital” Successful futures concentrate activity in open, transparent marketplace, achieving “critical mass” of liquidity • CME promotes openness and transparency Price discovery, transparency, open market access and competition enhanced by centralized liquidity pool |
 29 Copyright Chicago Mercantile Exchange Inc. All rights reserved. 3 Pillars - Financial Integrity • Financial Integrity Designated Contract Markets are bound by Core Principle 11 of the Commodity Futures Modernization Act of 2000 – to provide for the financial integrity of its markets A vertically integrated structure allows CME properly to discharge that duty CME has never experienced a default • Reliability and operating costs A vertically integrated exchange promotes reliability with coordinated execution, clearing, settlement |
 30 Copyright Chicago Mercantile Exchange Inc. All rights reserved. At issue - Control • Issue is actually about control of bid-offer spread “The majority of [exchange] shareholders are locals whose interest is in maintaining the grip of … open outcry … [preventing] … other forms of trading – such as internalization or crossing … because of the rules requiring exposure to the floor [or electronic order book].” – Kevin Davis in CFTC testimony • Per former SEC Chairman Arthur Levitt … “Internalization … substantially reduce[s] the opportunity for investor orders to interact … [which] … may hamper price competition, interfere with … public price discovery, and detract from the depth and stability of the markets” “Price matching dealers … take advantage of the public price discovery process … but need not contribute to the process of price discovery” This creates “disincentives for vigorous price competition, which … could lead to wider bid-asked spreads, less depth, and higher transaction costs … all orders could receive poorer executions” |
 31 Copyright Chicago Mercantile Exchange Inc. All rights reserved. Conclusion • Motivation behind fungibility and common clearing The proponents of fungibility and common clearing seek “to internalize their dealings, take the markets upstairs and exploit the profit from the bid/ask spreads.” “In doing so, they will no doubt make lots of money, but there will be two fundamental casualties in their wake.” • Casualties of fungibility “The first [casualty] will be in the transparency implicit in the exchange-transaction-process … Need we revisit the causes of the Enron debacle?” “The second casualty will be that of innovation. Does anyone here remember the last innovation produced by a utility?” |