Selling CME Group — Too Foggy

I bought shares of CME Group not that long ago — a few months back, for a significantly higher price than I’m getting for my shares now (I’m losing something on the order of 20% on these shares).

Why?

Well, I bought CME Group because of their growing monopoly status as a trading platform for commodities and derivatives, and I thought the takeover of NYMEX, which now seems pretty likely to go through, was a great idea.

I’m selling because the rabid debate about changing the regulations for commodity trading, as part of an effort to quell speculation, provides far more questions than answers for CME shareholders.  It may well be that CME Group comes out of this smelling like a rose, as the most transparent trading platform available for critical commodities and derivatives.  It also may well be that commodities trading volumes continue to drop, especially if the current bubble-like prices in many commodities drop quickly and sharply.  And it might be that the world for CME Group is radically different next year, with significantly different rules and regulations.  And, though they’ve tried this and failed before, there are many frustrated traders and bankers who continue to try to bankroll alternative exchanges that will provide pricing competition, at least to some degree, for CME.

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There are too many “mights” and “mays” in that sentence — I still like that CME Group provides an essential service and is nearly a monopoly, depending on how you look at it (their trading volume is radically lower than the volumes traded OTC, for example), but I can’t make a really compelling case that CME is a great buy here, or that it deserves a premium valuation, so I’m selling my shares.  I’ll reserve the right to buy these again if I begin to understand their business better in the future, but for now there’s too much uncertainty for my blood.

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