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The Homegrown Solution For The Chicago Stock Exchange

NYSE

The New York Stock Exchange (NYSE) is in talks to acquire the Chicago Stock Exchange (CHX), according to the Wall Street Journal, shortly after China’s own attempt to buy the iconic exchange was blocked—and the new price tag is likely to be triple the Chinese offer.   

The China-U.S. deal would have been worth about $25 million when it was initially proposed in February 2016. It would have seen China's Chongqing Casin Enterprise Group Co. as the lead investor in the exchange through a subsidiary, North America Casin Holdings.

But the sale was politically sensitive, even before Trump’s major anti-China push, and selling the Chicago Stock Exchange to Chinese investors ruffled some serious feathers on Capitol Hill.

In February, the Securities and Exchange Commission (SEC) rejected the acquisition, saying the deal was seriously flawed and citing concerns about the buyers and a dangerous loss of oversight ability. And then there were concerns about Chinese government interference in U.S. markets—the most haunting specter.

It was also good election campaign fodder because Obama had approved the initial proposal for the deal, and Trump was quick to criticize along the campaign trail, even though he jumped the gun in his misuse of verb tenses.

“China bought the Chicago Stock Exchange — China, a Chinese company,” Trump said in a nationally televised debate in South Carolina. "They are taking our jobs. They are taking our wealth. They are taking our base."

John Kerin, CEO and president of the Chicago Stock Exchange, wasn’t happy when the SEC rejected the deal. “This investment is an investment group,” Kerin lamented. “Two members happen to be Chinese. We’ll have to see what this investment group does going forward.”

If this deal had been approved it would have been the first time Chinese investors were directly in control of a U.S. stock exchange, but it wouldn’t have been the first time that foreign owners had scooped up an American exchange. In 2007, the Deutsche Boerse bought the U.S.-based International Securities Exchange for $2.8 billion but sold it in 2016 to Nasdaq Inc for $1.1 billion.   Related: Global M&A Hits $1.2 Trillion As Megamergers Return

Just over a month after the SEC’s rejection, the idea of such a sale would have been a complete non-starter.

Enter, the New York Stock Exchange—the homegrown answer for the Chicago bourse.

The NYSE--the country’s best-known exchange operator—is said to be proposing around $70 million for CHX. That’s triple the price offered by another the Chinese-backed North America Casin Holdings.

But for now, everyone’s remaining tight-lipped about the potential deal and neither side has confirmed, though Bloomberg says the talks are in the “advanced stage”.

Bloomberg says we could expect a deal announcement as soon as next week, valuing it at anywhere between $50 million and $100 million and citing unnamed sources.

Last month, the Chicago exchange said it was looking for new buyers and exploring strategic alternatives, including possible sale.

But the NYSE’s alleged interest in Chicago isn’t a deal that would be guaranteed from a regulatory perspective. The Chicago exchange handles less than one percent of U.S. stock trades. But if acquired by the NYSE, Chicago—as the last U.S. regional stock exchange—would lose its independence.  

It would also have to forfeit its long-standing goal of becoming a marketplace for small companies. And … Chinese companies.

But there isn’t likely to be any pushback in terms of how much the NYSE’s parent company controls in this case. The entire U.S. stock market is valued at $29 trillion, and Intercontinental Exchange, which owns NYSE, would only be adding less than one percent of this to its roster. It would give the company its fifth exchange. It already owns NYSE, NYSE National, NYSE Arco, NYSE American and controls 22 percent of U.S. stock market volume.

By Josh Owens for Safehaven.com

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