In early November 2018, Eurex Clearing made the news for working with BrokerTec Europe Limited in order to launch a new clearing solution for the European repo market, which will be live by the end of this year. Via the BrokerTec platform, market participants choosing to clear repo transactions will begin to consolidate their European repo and corresponding OTC and listed derivatives business under the single risk framework of Eurex Clearing.
The Competition and Markets Authority, UK’s competition watchdog, has cleared CME Group’s acquisition of NEX Group, allowing both companies to finalize the £3.9 billion ($4.96 billion) deal.
CME Group will use the opportunity to the NEX name and brand but will continue to operate its individual Markets and Optimisation businesses as sub-brands including BrokerTec, EBS, Traiana and TriOptima. The merger will enable investors to access cash and futures trading and over-the-counter services through one provider for the first time.
CME Group will preserve NEX’s existing market structures but will use its technology, futures trading and product development expertise to strengthen and scale its businesses. The merger is expected to deliver new trading opportunities and simplify access by reducing the number of touchpoints to trade across platforms, and the combined company’s post-trade services expertise will strengthen its compression, reconciliation and processing businesses.
Terry Duffy, Chairman and Chief Executive Officer of CME Group, commented: “We are extremely pleased to complete this acquisition and welcome NEX into CME Group. By combining the strengths of our two leading organizations, CME Group is uniquely positioned to address the changing needs of market participants worldwide. Together, we will provide efficient access to futures, cash and OTC markets, as well as post-trade services and data offerings that will further support cost-effective trading and risk management. Michael Spencer and his team have built NEX into a world-class company. Our combined organization will preserve the existing market structure of our various businesses while also creating efficiencies and streamlining technology for our clients. With a significantly expanded global footprint, we are committed to ensuring a smooth transition for all customers and partners going forward.”
Michael Spencer, founder of NEX and new member of the CME Group Board of Directors, said: “Today NEX becomes part of the world’s leading exchange group. Together we will continue to innovate and deliver industry-leading technology to our customers and help to drive the continued development of the financial markets. I am excited about the future for this combined group and the many new opportunities that it will provide for our employees, customers and the wider marketplace. I look forward to working with Terry, the CME Group Board of Directors and the combined team from both CME and NEX as we shape and grow the company.”
CME Group expects the acquisition to produce a pro forma 2017 annual revenue of $4.3 billion, adding to the run-rate cost synergies of $200 million annually by the end of 2021.
NEX Markets has announced that BrokerTec Europe Limited has worked with Eurex Clearing to launch a new clearing solution for the European repo market, which will be live by the end of this year.
Existing BrokerTec clients will be able to select to clear their repo transactions via Eurex Clearing, one of the largest global CCPs. Via the BrokerTec platform, market participants choosing to clear repo transactions will begin to consolidate their European repo and corresponding OTC and listed derivatives business under the single risk framework of Eurex Clearing.
The new clearing solution for the European repo market will provide a more efficient way of optimizing cross-asset portfolios, which enables such competitive markets to adapt to fundamental changes, such as Brexit and the European securities settlement engine, T2S. In addition, BrokerTec and Eurex Clearing will be targeting new clients and reach additional liquidity pools for its CCP.
Matthias Graulich, Member of the Executive Board, Eurex Clearing, commented: “In the future, the scale and scope of our cleared markets will provide unique capital and balance-sheet netting opportunities for clients across repo and derivatives.”
John Edwards, Managing Director, BrokerTec Europe, added: “As the leading dealer to dealer trading venue for both Euro and Sterling denominated repos, there are emerging opportunities in a post- Brexit world, as well as a desire to extend and diversify the clearing choices that our customers have when trading repo. By working with Eurex Clearing, this connectivity offers our trading participants further options when settling Special and GC repo transactions and providing capital efficiencies to our clients.”
The Industry Spread covered Eurex Clearing’s recent announcement regarding the expansion of its partnership program to repo to cover the repo and OTC foreign exchange (OTC FX) segments. As part of its partnership program Eurex Clearing shares governance and economics with the most active program participants.
NEX Group, the London-based electronic trading firm and exchange operator has published its FY18 financial results ended on 31st March 2018. The group posted a healthy and modest growth across its business line helped by market volatility and growth in emerging markets.
The group posted 9 percent increase in revenue in FY18 to £591 million compared to £541 million in 2017 while statutory operating profit fell by 4 percent to $147 million. The company’s NEX Markets division which consists of BrokerTec and EBS platforms had a stable year with decent 4 percent rise in revenues to $151 million compared to $145 million in fiscal 2017.
In a statement from NEX Group, the revenue growth at EBS was contributed by emerging market currency pairs while G10 currency pair trading volume strengthened in the final quarter helped by overall market volatility. Also during the year, EBS Markets continued to develop and create liquidity in NDFs with average daily volume increasing more than 25 percent against last year.
The group continued with its innovation in services during the fiscal and launched NEX Quant Analytics in September 2017, providing community-based analytics tool for clients trading on the EBS platform. New Aggregation Logic (NAL) which was initially introduced in the European region is now set for global launch in the coming months.
The group in order to meet its long-term profits targets has further deepened the cost-cutting initiatives even it received a boost from the increased volatility in the market. In its final result on Tuesday, the group disclosed that it has found an additional £10m of additional cost saving in recent month, taking its target over a three year period to £50m.
The cost-cutting initiative by NEX Group comes despite agreeing to Chicago’s CME Group takeover bid of $5.5 billion or £3.9 billion which makes it £10 per share consideration for NEX. The deal will make CME Group leader in the $500bn-a-day trading volume in US Treasuries market with the purchase. Through this acquisition, CME Group expects to generate cost synergies of $200m by the end of 2021 and to incur a one-off cost of $285m to achieve it.
Michael Spencer, Group CEO said:
Over the past year, we have seen the continued growth of trading activity in emerging markets, increased demand for regulatory solutions and data analytics from the implementation of MiFID II, and the growing role of non-banks in our client base. In February, financial markets received a long-awaited and much-welcomed jolt of activity as volatility returned. Whilst it was short-lived, the underlying level of market volatility is higher today than it was a year ago due to a sustained shift out of emerging market currencies into the US dollar and we have benefited from this. We had some notable and very hard-won developments in the second half of the year. NEX Markets has delivered a 40% margin, NEX Optimisation recovered back to a 28% margin as promised, we saw a rebound in European repo trading and have been achieving continual record trading days in US repo. These are all important developments.
Last week our shareholders voted overwhelmingly in favour of the acquisition of NEX by CME Group. CME is the best buyer of NEX. Scale matters in this industry and bringing these companies together creates exciting revenue, technology and synergy opportunities. Once complete, this will be a truly industry-defining transaction and one which will bring huge benefits to our clients, the market, and to the City of London through CME’s commitment to maintaining London as its European headquarters. As Britain continues its path to leave the EU, commitments like this matter.