CHICAGO — The largest futures exchange in the U.S. finds itself at a critical inflection point almost four years after what many people say was among the more successful initial stock offerings in history.

Chicago Mercantile Exchange Holdings Inc., parent of the futures and options exchange of the same name, has stayed mainly on the sidelines while some competitors pressed forward with consolidation, which could mean increased competition for CME.

At the same time, futures traders don't expect the Federal Reserve to raise short-term interest rates for the rest of the year, and analysts said that could slow growth in CME trading volume and company earnings.

CME shares have been on a roller coaster ride ever since, dropping about 16 percent from the high by late August before recouping part of their losses over the past two weeks. The stock closed at $467.66 Tuesday, still up from a 52-week low of $285.15 set last October.

Shares of CME rose 4.1 percent Friday, part of an industrywide rally tied to news that InterContinentalExchange Inc. announced it made a $1 billion offer to take over the New York Board of Trade. The deal rekindled investors' hopes that exchanges would take advantage of the synergies created by industry consolidation.

Thanks to CME's success as a public company, its stock is compared to earnings the most expensive or close to the most costly versus competing exchanges heading into next year. Those exchanges include smaller city counterpart CBOT Holdings Inc., ICE, and traditional stock market rivals NYSE Group Inc., which operates the New York Stock Exchange, and Nasdaq Stock Market Inc.

The highly volatile CME stock has tested the resolve of long-term shareholders including R.H. Bailin, who says that he's kept about 80 percent of the shares he bought at the time of the IPO.

"I'm nervous, but I'm also nervous when I trade 10 cattle contracts," said Bailin, who market participants say holds a substantial number of shares. Bailin declined to say how many shares he owns.

Equity analyst Donald Fandetti of Citigroup Investment Research labeled CME as a "high risk" stock, setting a 12-month target price of $429 a share.

"We are positive on CME's strategy, franchise and global growth prospects, yet we believe much of this upside is already factored into the stock at current levels," Fandetti said in his most recent research note on CME.

Executives at CME have said they will engage in merger talks with other exchanges if they have the potential to enhance shareholder value. But so far, CME, much like CBOT, has focussed on organic growth measures, such as expanded product offerings or enhanced electronic trading capabilities.

Some investors have criticized the exchange for not using its significant cash holdings _ the exchange had about $1.1 billion working capital at the end of the second quarter _ to purchase another exchange. Others say the exchange is pursuing the appropriate strategy.

"It's a mark of a poor management team to do a deal just because someone else has," said Richard Herr, a stock analyst at Keefe, Bruyette & Woods.

CME faces the prospect of increased competition, as NYSE and pan-European stock exchange operator Euronext NV will reportedly attempt to launch a futures exchange should the two firms complete a merger deal.

CME is also being tested by expectations that the enormous trading volume growth in recent years _ particularly in interest rate futures _ will tail off if the Federal Reserve decides to stop raising short-term rates.

Futures and options contracts tied to interest rates account for about 60 percent of all CME volume. Traders have flocked to CME's benchmark interest-rate product, Eurodollar futures, to manage risk or profit from uncertainty about when the Fed will stop raising rates.

U.S. central bankers on Aug. 8 left rates unchanged after implementing 17 consecutive quarter-percentage point rate hikes dating back to June 2004. The consensus among futures traders is that the Fed won't raise rates again this year.

But others argue that interest-rate volatility is bound to continue as some traders are already placing bets on when they think the Fed will start lowering short-term rates.

Analysts Fandetti and Herr said they do not own CME shares, but Citigroup and Keefe, Bruyette, & Woods state they have investment banking relationships with the exchange.

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