CME, NEX Set to Clear Final Acquisition Hurdles

Antitrust regulators in the UK have cleared the Chicago Mercantile Exchange Group’s (CME’s) acquisition of London-based NEX Group, paving the way for the two firms to form a significant force in global derivatives trading.

The CME is planning a share-and-cash acquisition of NEX, which was formed after interdealer broker Icap sold its voice-broking business to Tullett Prebon in 2016. NEX operates a number of electronic markets in currency and fixed-income trading, as well as a technology arm that includes key post-trade services providers, including Traiana and TriOptima.

On October 12, the US Department of Justice approved the transaction, and on October 31, the UK’s Competition and Markets Authority (CMA) said that it had also cleared NEX’s acquisition and would not refer it for further investigation.

The tie-up will create a dominant force in certain US markets, particularly the trading of Treasurys. While news of the acquisition first broke in March, the two firms have had to go through a series of antitrust approvals by regulators in both the US and the UK.

UK authorities, in particular, have proved to be challenging when it comes to large-scale financial services mergers and acquisitions—winning antitrust approval from the CMA, for instance, was one of the largest hurdles for the aborted London Stock Exchange-Deutsche Borse merger in 2016.

However, CME and NEX executives have repeatedly said that they were confident of the approvals. On an earnings call with analysts on October 25, John Pietrowicz, CFO of the CME, said that the exchange believed that “the transaction will be closed before year-end,” and that both firms “feel very good in terms of where we stand with the regulators.”

Sources in the UK and US fintech industry had also expressed hesitancy about the chances of the acquisition escaping unscathed. One Treasurys trader at a US bank said it was “by no means a slam dunk” after the acquisition received approval under the US Hart-Scott-Rodino antitrust law. Another executive at a European exchange said that they would have been “surprised” if NEX or CME didn’t have to divest anything in order to clear antitrust approvals.

However, executives at both firms have taken steps in recent months to express commitment to the UK, which is set to leave the European Union in March 2019. While NEX has established presences in Europe, particularly in Amsterdam, in anticipation of the withdrawal, both firms have publicly said that London will remain the firm’s European headquarters. Both companies have existing, substantial presences in the City of London, and Michael Spencer, the CEO of NEX Group, has strong links to British politics, having been the treasurer of the ruling Conservative Party from 2006 to 2010.

A CMA court hearing is expected to take place on November 1, which will formalize the decision.

Following that meeting, trading in NEX shares will be suspended at 4:30pm on the same day, with the cancellation of NEX shares on the London Stock Exchange following on November 5. The CME will then issue new shares on the same day, closing the acquisition.