NEW YORK May 14 Mid-sized U.S. commodities brokerage INTL FCStone Inc said on Tuesday it plans to buy online commodities exchange Cleartrade Exchange in its first major push into Asia and a sign it wants to harness potential growth from regulatory reform.
The deal ends Singapore-based Cleartrade's three-month search for an investor to fund expansion and comes as commodities futures brokers seek ways to boost profits as lower trading volumes and intense competition stymie growth.
Following its launch three years ago as an online market for over-the-counter freight derivatives, Cleartrade has broadened into commodities, including energy and metals.
It now has 43 commodity contracts and connects to major clearing houses LCH.Clearnet, Singapore Exchange Ltd and Norwegian freight and energy clearer NOS Clearing ASA.
For INTL FCStone, the deal is its first big expansion into the burgeoning Asian market. A purchase is also in line with the company's previous efforts to grow through acquisitions.
It comes after its foray into metals derivatives trading just 18 months ago when it snapped up MFGlobal's former metals team and its membership in the London Metal Exchange.
Cleartrade also gives it exposure to the potentially lucrative online commodities market as more over-the-counter trading shifts onto screens and cleared markets due to extensive regulatory reform in the United States and G20 countries.
That may bring some relief to the U.S. broker, which has overhauled operations to comply with complex regulatory changes.
While greater regulatory oversight will see commodities catch up with other financial markets, the costs have been high as brokers struggle with lower trading volumes and tight margins, Sean O'Connor, chief executive at INTL FCStone, said last week.
"Dodd Frank is a reality. We've spent over a year preparing, it's been expensive, time consuming and a frustrating process which I think we've come through very well," he said in a conference call to discuss second-quarter to end-March results.
Quarterly net income sank almost 90 percent from the previous quarter and 38 percent from a year earlier due to lower trading volumes from the core agricultural customer base.
Terms of the Cleartrade deal were not disclosed and completion is subject to final stages of due diligence and fulfillment of certain conditions.