Chinese Investors Buy the Chicago Stock Exchange and Its Technology

Chinese acquisitions of US and European companies are usually investigated by the national governments involved in order to vet 'security' issues. There is some value in those exercises, especially where technology is at risk. But really, what they are doing is providing cover to determine whether any ostensible nationalistic outrage about the buyers outweighs the commercial benefits accrued by the sellers.

In this case, the public relations effect of Chinese buying one of Chicago's proud capital markets centers may be greater than the financial impact of the modest Chicago exchange. That the event is more significant for what it infers about shifting socio-economic trends than for any operational reason does not lessen the import of the shift in ownership. JL

Paul Welitzkin reports in China Daily:

A Chinese-led investor group is buying the Chicago Stock Exchange, also known as CHX, to eventually list Chinese companies on it, and also may use CHX's technology and model to start an equities exchange where it is based in China.
A Chinese-led investor group is buying the Chicago Stock Exchange, also known as CHX, to eventually list Chinese companies on it, and also may use CHX's technology and model to start an equities exchange where it is based in China, according to the CEO and chairman of the 134-year-old bourse.
John Kerin also told Reuters that under the new ownership, the exchange would have the funding for efforts like revamping its listings program."They like our strategy, and they want us to continue to execute on it," he said in an interview.
The investor consortium led by Chongqing-based Casin Enterprise Group said on Feb 5 it will acquire the exchange, which handles about 0.5 percent of the average daily trading volume in the US.
It would be the first purchase of a US exchange by investors from China, but not to a foreign entity. A unit of Germany's Deutsche Boerse AG acquired the International Securities Exchange in 2007.
Bloomberg reported that the deal values the exchange at less than $100 million, according to a person familiar with the matter, who asked to not be identified because the terms were not disclosed publicly.
The exchange said the deal is expected to close in the second half of the year, and will require the approval of the US Securities and Exchange Commission.
The acquisition also might be reviewed by the Committee on Foreign Investment in the United States (CFIUS), which has jurisdiction to examine an acquisition of a US business that will result in foreign control. CFIUS is only interested when the transaction raises national security or critical infrastructure concerns.
"It is possible that CFIUS could be interested in this transaction because financial services can be considered part of the critical infrastructure of the US," Laura Fraedrich of Jones Day in Washington told China Daily. "However, given the very small percentage of the US market that this exchange represents, CFIUS may determine that it can be comfortable clearing the deal, especially since it is a highly-regulated industry and those regulations will continue in place regardless of the owner."
Joe Saluzzi, co-head of trading at Themis Trading and author of Broken Markets, said the deal may raise security concerns.
"Does foreign ownership open up any potential for information leakage to someone who can take advantage of it? As an investor, I would raise an eyebrow," Saluzzi told CNN Money. "As long as the information is secure, I don't have any problem with it."
Anne Salladin of Stroock&Stroock&Lavan LLP said that she would be "very surprised if CFIUS did not have an interest in taking a look at this deal."
The CHX acquisition came in a week that saw two major purchases by Chinese companies: the $1.6 billion purchase announced on Feb 4 by Beijing Enterprise Holdings for German waste-management company Energy from Waste, and the $43 billion deal on Feb 3 by China National Chemical Corp for Switzerland-based seed and pesticide maker Syngenta AG, the biggest foreign acquisition ever by China. Syngenta said last week it would file it plans with CIFIUS.
Founded in 1997, privately held Chongqing Casin Enterprise Group has interests in real estate, infrastructure, financial services and environmental protection. Casin Group has 821 employees with operations in Beijing, Hong Kong, Sydney and other locations.
"We have reviewed CHX's plans to improve market share through new growth initiatives and fully support them.
 Together, we have a unique opportunity to help develop financial markets in China over the longer term and to bring exciting Chinese growth companies to US investors," Shengju Lu, Casin Group founder and chairman said in a statement.
The investor group intends to preserve CHX's current business operations and proprietary trading platform, andKerin would remain as CEO and chairman.
With locations in Chicago and New Jersey, the CHX is mainly used by market makers that buy and sell the most active exchange-traded funds and hedge their positions using futures on CME Group Inc's Chicago Mercantile Exchange.
The CHX, a subsidiary of CHX Holdings Inc, is minority-owned by a group including E*Trade Financial Corp, Bank of America Corp, Goldman Sachs Group Inc and JPMorgan Chase & Co, according to the company. The minority shareholders are also selling their stake, Kerin said.