Securities Exchanges as Publicly-Traded Corporations

  Three securities exchanges have gone public this year:  The Chicago Board of Trade (CBOE), the International Securities Exchange (ISE), and recently the Intercontinential Exchange (ICE).  The Chicago Mercantile Exchange (Merc) went public in 2002.  The exchanges all deal in financial derivatives:  CBOE trades treasury treasury futures, the ISE features stock options, the ICE trades energy contracts, and the Merc features Eurodollar futures.  Each has been a success story.  The Merc went public at $35 a share and is now trading at over $375.  The ISE, is up two-thirds since a debut in March of this year.  ICE opened at $26 a share and climbed to $40 on its opening day.  These are stunning numbers and suggest that when our stock exchanges go public we will see some remarkable valuation numbers.  Are the prices a bubble or real?  I believe that they are real with market insiders reflecting two things:  First, exchanges will be run very differently once they de-mutualize (not longer a member run old boy's club, they will have to show profits) and, second, the exchanges have a very privileged regulatory position, giving them pricing power in their markets (profits are available to be made by the new managers).  When the NYSE goes public in its reverse merger with Archipelago, we are going to see some real fireworks.