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CME Group (CME), IHS Markit to Combine Post-Trade Services

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CME Group Inc. (CME - Free Report) has teamed up with IHS Markit to combine their post-trade services for over-the-counter (OTC) markets into a new 50/50 joint venture. Pending regulatory conditions, the deal is slated to close in in the summer of 2021. The transaction details have been kept under wraps.

Per the transaction, IHS Markit is required to pay $133 million to achieve 50/50 ownership and shared control in the joint venture.

The newly formed company will incorporate CME Group's Traiana, TriOptima, and Reset, and IHS Markit's MarkitSERV, with the intent to furnish OTC market participants with improved risk management capabilities across interest rate, FX, equity and credit asset classes. The market participants will gain from a more efficient front-to-back workflow with improved connectivity and trading certainty.

MarkitSERV provides end-to-end trade processing and workflow solutions that support all participants in OTC trading, from post-trade notices of execution, trade confirmation and allocations to clearing and reporting.

Currently, the ongoing OTC market structure changes are altering the way the industry operates, creating an intricate web of connectivity, data management and trade processing requirements.

Rapid growth in new trading, reporting and clearing venues globally, along with associated connectivity and processing demands is creating pressure on the participants. Moreover, the costs associated with compliance with new and evolving OTC regulations while maintaining operational flexibility are also higher.

MarkitSERV helps industry participants meet these challenges while minimizing the cost and complexity of running their business.

The newly formed joint venture is well poised to serve clients globally, given the combined strength of the Traiana, TriOptima and Reset businesses, which offer a wide range of trade services with capital efficiencies across markets, delivering trade processing connectivity, credit controls, optimization and risk mitigation solutions. TriOptima is an OTC derivatives market infrastructure specialist whereas Traiana operates a global cross-asset network, connecting market participants to an established suite of post-trade processing, workflow and credit risk services.

CME Group enables clients to trade futures, options, cash and OTC markets; optimize portfolios, and analyze data, thus empowering market participants worldwide to efficiently manage risk and capture opportunities. This latest deal is expected to boost and expand its post-trade and trade-processing services and enhance the OTC markets. It continues to focus on strategic initiatives to grow the business, including the efforts to serve the OTC markets and to distribute the products and services on a global basis.

Shares of this largest futures exchange in the world in terms of trading volume as well as notional value traded has gained 21.7% in the past six months, outperforming the industry’s increase of 19.6%. Moreover, the company’s policy to ramp up its growth profile and capital position should help shares regain momentum.

The stock currently carries Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Some better-ranked insurance stocks from the same space include OTC Markets Group (OTCM - Free Report) , MarketAxess Holdings Inc. (MKTX - Free Report) and Intercontinental Exchange Inc. (ICE - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

OTC Markets surpassed bottom-line estimates in three of the last four quarters. It has a trailing four-quarter earnings surprise of 11.96%, on average.

MarketAxess surpassed bottom-line estimates in each of the last four quarters. It has a trailing four-quarter earnings surprise of 2.71%, on average.

Intercontinental Exchange surpassed bottom-line estimates in each of the last four quarters. It has a trailing four-quarter earnings surprise of 2.75%, on average.

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