January 16, 2015 / 8:06 PM / 5 years ago

BATS in talks to buy KCG's FX trading platform Hotspot

NEW YORK (Reuters) - Exchange operator BATS Global Markets is in discussions to buy institutional foreign exchange trading platform Hotspot from KCG Holdings Inc KCG.N for nearly $400 million, three sources close to the situation said on Friday.

Jersey City, New Jersey-based KCG said in October it had begun to explore strategic options for Hotspot and that it would sell the unit if doing so would create the best value for its shareholders. KCG also owns a 16.5 percent stake in privately held BATS and has said on several occasions that it might consider selling the stake for the right price.

A spokesman for BATS and a spokeswoman for KCG declined to comment.

The talks between BATS, the No. 2 U.S. stock market operator by volume, and KCG, a financial services provider, are advanced, but a deal is not guaranteed, said one of the sources, all of whom declined to be named because the details are not public.

The $5 trillion-a-day foreign exchange market has been the focus of a probe by regulators in Britain following allegations that bank traders used advance knowledge of client orders to try to manipulate foreign exchange benchmarks.

The regulatory pressures could cause more banks to shift their big voice-based orders at the center of the currency market scandal to more transparent electronic systems. That in turn has made Hotspot, which has a client base of banks, professional trading firms and institutional investors, a desirable commodity.

Separately, foreign exchange broker FXCM Inc FXCM.N, which unlike Hotspot is retail-focused, was reeling on Friday after its customers lost more than $200 million from the surging Swiss franc, forcing the company to seek emergency capital.

Regulators worldwide have been cracking down on trading practices and platforms in all asset classes.

On Monday, the U.S. Securities and Exchange Commission said BATS agreed to pay a $14 million fine to settle charges that two stock exchanges formerly owned by Direct Edge Holdings selectively disclosed information about how firms can advantageously place certain orders on its markets.

BATS, which runs four U.S. stock exchanges, an options exchange and the biggest pan-European stock market, did not admit or deny any wrongdoing.

BATS merged with rival Direct Edge a year ago, vaulting it ahead of Nasdaq OMX Group (NDAQ.O) and just behind Intercontinental Exchange Inc’s (ICE.N) NYSE unit for stock trading volume.

KCG, which trades equities, fixed income, currencies and commodities through both voice and automated execution, and includes an agency brokerage and off-exchange trading platforms, formed in July 2013 after trading firm Getco bought rival Knight Capital Group.

Editing by Chris Reese, Steve Orlofsky and Matthew Lewis

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