CME Group buys UK-based NEX to create futures exchange behemoth

The first quarter of the year saw a slew of consolidation activities happening in the business world, making it one of the busiest periods for M&As. While the industry and retail sector topped the list, the financial services sector has kept a low profile.

This week, Chicago-based derivatives marketplace CME Group (CME) clinched a deal to acquire NEX Group, the London-headquartered Inter-broker dealer formerly known as ICAP, for $5.5 billion. The deal, touted as the biggest amalgamation in the sector in recent times, will provide CME better access to the Treasuries market, while also expanding its foreign exchange services in the overseas market.

For CME, the main advantage is the inclusion of NEX’s electronic forex and fixed-income trading platforms into its fold, which will ensure cost reduction, improved risk management and better accessibility for clients. In the words of NEX chief Michael Spencer, it will be ‘an industry-changing transaction’ that unlocks significant value for shareholders of both the companies.

Meanwhile, it is a strategic partnership for the expansion-hungry CME, allowing it to make significant inroads into the global forex marketplace and go beyond the futures. Traders in Europe can benefit from the derivatives exchange giant’s extensive market intelligence for its products.

On completion of the acquisition, tentatively in the latter half of the year, CME will have its Europe headquarters based in London. Spencer will join the board of directors of the combined entity and will also serve as its ambassador dealing with customers and regulators.

Chicago-based CME Group clinched a deal to acquire London-headquartered NEX Group for $5.5 billion

The general uptrend in the world economy and fast-changing market dynamics has created an atmosphere conducive for derivatives trading companies to pursue consolidation. This assumes significance considering the fact that the complexities involved in operations have left the derivatives market underexplored for quite some time.

Of late, the proliferation of electronic trading opportunities significantly eased the constraints for foreign investors to access the local market. So, on the expansion front, it makes sense for futures traders to establish tie-ups with companies doing business in other markets.

NEX shares made a sharp gain after the announcement, while CME traded lower in the pre-market on Thursday than its previous close.