March 15, 2018 / 5:21 PM / 2 years ago

Exchange operator CME in talks with Britain's NEX on possible takeover

LONDON (Reuters) - Britain’s NEX Group Plc NXGN.L said it had received a preliminary takeover approach from U.S.-based exchange operator CME Group (CME.O), in a move to create a cross-border trading powerhouse.

A man enters the CME Group offices in New York, U.S., October 18, 2017. REUTERS/Brendan McDermid

Talks with CME Group - one of the world’s biggest exchange groups that owns the Chicago Board of Trade (CBOT) and the Chicago Mercantile Exchange - are at an early stage, NEX Group said in a statement on Thursday.

The talks were first reported by Bloomberg.

NEX, a financial technology company that matches buyers and sellers of bonds, swaps and currencies, said there was no certainty that an offer would be made.

Scooping up NEX would mark another attempt by a foreign exchange operator to buy into a British business to straddle on and off exchange products, cash and futures markets, and clearing.

Known as ICAP until the sale of its voice broking business to TP ICAP TCAP.L in 2016, NEX was founded by Michael Spencer, its chief executive and a high-profile figure in London’s financial industry.

Its shares have surged more than 40 percent over the last two years as market volatility in the wake of political surprises, such as U.S. President Donald Trump’s victory and Britain’s decision to leave the European Union, fueled trading on its platforms.

COULD HIT LSE’S CLEARING UNIT

Attempts at blockbuster exchange mergers, such as between the London Stock Exchange (LSE) and Deutsche Boerse, have hit antitrust buffers in recent years, and buying NEX could be easier for regulators and politicians to accept.

Patrick Young, an adviser to exchanges, said CME could be looking to clear NEX products to boost in-house business, a step that would hit rival clearing houses like the LSE’s (LSE.L) LCH unit.

“Will this open a bidding war? The LSE is in danger of missing another opportunity and it’s a huge potential risk to its clearing house LCH if the clearing business went to CME,” Young said.

“The InterContinental Exchange (ICE.N) will also have to consider NEX carefully as well,” he said, referring to the owner of the New York Stock Exchange.

CME Group closed two operations in London last year after they ran up losses of more than $100 million, saying its customers preferred using its U.S. operations.

“Many people thought that CME would not bid for any assets in Britain until the Brexit situation was absolutely sorted,” said Young.

Britain leaves the EU in March next year and it is unclear how much access trading platforms in London will have to customers in the bloc in future.

Reporting by Rishika Chatterjee in Bengaluru and Huw Jones in London; Editing by Savio D'Souza and Susan Fenton

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