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Is CME Group (CME) Eyeing LSE's French Clearing Business?

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CME Group Inc. (CME - Free Report) has reportedly submitted a bid to acquire the French clearing business of London Stock Exchange Group (“LSE”), for over £340 million (€400 million). The news was first reported by Reuters citing a report by the Sunday Times.

In order to ease concerns of the European Union watchdogs over LSE's proposed merger with Deutsche Boerse, LSE revealed at the end of September that it has started exploring the sale of Paris based LCH SA – the operating wing of its majority-owned clearing house, LCH.Clearnet Group.

In its release LSE had stated, “Any potential sale of LCH SA would be subject to the review and approval by the European Commission in connection with the recommended merger of LSEG and Deutsche Börse AG which was announced on 16 March 2016 (the "Merger") and other customary conditions including relevant regulatory approvals.  It would also be conditional on the successful closing of the Merger.”

The £21-billion merger deal would lead to the creation of the largest exchange operator in Europe. However, the deal is currently under strict regulatory investigation over concerns that it could hurt competition in clearing and derivatives trading, short-term bank debt and other areas of the financial markets.

Clearing houses, which serve as intermediaries between buyers and sellers of financial instruments and provide guarantee in case of defaulting traders, gained spotlight following the UK’s vote to leave the EU. Since the Brexit referendum, politicians in Europe has been pressing that euro-based clearing should occur under an EU jurisdiction.

The European competition authority had raised concerns that merging clearing houses of LSE and Deutsche Borse may damage other trading venues that depend largely on clearing by LCH and hurt post-trade markets including collateral management and settlement.

While Paris-based Euronext had initially conducted talks with LSE to acquire LCH SA, other interested parties include Nasdaq, Inc. (NDAQ - Free Report) .

For CME Group, potential wining of the bid will boost its European business. The Chicago, IL-based company’s unit – CME Clearing – was among the five major clearinghouses that recently passed the supervisory stress test conducted by the U.S. Commodity Futures Trading Commission (CFTC). CFTC found that these clearing houses had sufficient resources to withstand highly stressed conditions

CME Group shares have gained 23.5% year to date, outpacing the 16.5% growth for the Zacks categorized Securities Exchanges industry.

CME GROUP INC Price

 

Currently, CME Group carries a Zacks Rank #3 (Hold).

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