Two big European alternative markets – Chi-X Europe and BATS – are talking about a merger as the European stockmarket sector could start to consolidate. The two issued a joint statement on 22 December confirming they “have entered into exclusive negotiations regarding the potential sale of Chi-X Europe to BATS Global Markets.”
Neither is currently profitable, according to news reports, since there are some 40 alternative platforms in Europe, since November 2007 when European regulation (the Markets in Financial Instruments Directive – Mifid) removed monopolies for national stock exchanges.
If the 2 combine, it would be the biggest stock exchange in Europe by volume. According to a report in the Financial Times, the talks may continue until 11 February.
Chi-X Europe (www.chi-xeurope.com) is reportedly Europe’s second-largest stock exchange and facilitated trading of €372 billion ($490 bn) in the third quarter of 2010, according to newspaper reports that said it has about 25% share of trading in FTSE100 securities, second only to the London Stock Exchange (LSE), and 15.4% of trading in European equities, after Euronext but ahead of Deutsche Börse.
It had effectively been up for sale since August. It is advised by Lexicon Partners, a London investment bank and had previously talked to Nasdaq OMX and NYSE Euronext but the latest news means that others are out of the bidding race. The FT says this would be good news for the LSE, for whom Nasdaq OMX is a major rival and even tried to buy the LSE in 2006. It adds that Chi-X Europe could be worth $300 million and the deal could be achieved through a share swap.
Chi-X Europe Limited is a securities firm authorized by the UK’s Financial Services Authority and says it operates “a multilateral trading facility (MTF) for the trading of more than 1,300 of the most liquid securities across 24 indices and 15 major European markets, as well as ETFs (exchange traded funds), ETCs (exchange traded commodities) and IDRs (international depositary receipts) in both a visible order book and the Chi-Delta non-displayed order book. Chi-X Europe’s low-cost, streamlined operating model is designed to help trading participants achieve ultra-low execution and clearing and settlement costs.” It aims to let people trade stocks at lower costs than they could achieve on the market of listing. It sparked a price war.
According to the Jeremy Grant writing in the FT, its shareholders include Instinet, the brokerage arm of Japan’s Nomura (which may seek a sale to raise funds), banks (including Citigroup, Credit Suisse, Bank of America Merrill Lynch and Morgan Stanley) and 2 proprietary trading firms, Getco of the US and Netherlands-based Optiver. Getco is also a shareholder in BATS. Apparently the mentioned banks and Getco are also shareholders in BATS. The combined exchange would give Getco a key position in share trading in Europe.
BATS Global Markets (http://batstrading.com) describes itself as a financial markets technology company, with headquarters in Kansas in the US and offices in New York and London. It was founded in June 2005. BATS operates two stock exchanges in the US (the BZX Exchange and BYX Exchange, one of which is described as the third-largest US stock exchange); a US equity options market (BATS Options); and BATS Europe, an MTF, also authorized by the FSA and reportedly the second-biggest alternative trading platform in Europe. It has weekly turnover of about €10 bn- €15 bn ($13 bn-$20 bn) and about 12% of trading in FTSE100 shares.
Stock exchanges have high running costs and having many means a limit on total trading volumes but helps keep trading costs down and liquidity high.
What do readers think – could mergers help develop Africa’s securities exchanges?