By Luke Jeffs
LONDON (Reuters) - BATS Global Markets, the U.S.-based trading platform, is taking over peer Chi-X Europe in a deal aimed at challenging the dominance of national exchanges in share and futures trading.
The deal is the latest in a spate of mergers and acquisitions activity in the global market for stock trading.
BATS, which has been in exclusive takeover talks with Chi-X since December, is keen to break the stranglehold of national exchanges like Deutsche Boerse
Chi-X and BATS, which plan to launch futures trading in the next year, would have a combined European equity market share of 22.9 percent while Deutsche Boerse/ NYSE Euronext would have 29.7 percent and the LSE 23.4 percent, Thomson Reuters data shows.
The firms did not disclose the value of the transaction, which they said is expected to close in the second quarter of this year. A source told Reuters previously that BATS was paying Chi-X more than $300 million in stock and that the deal could value BATS at $1.2 billion.
The BATS agreement came amid a flurry of exchange activity. The LSE on February 9 agreed to buy Canadian futures specialist TMX, and on February 18 a partnership with Asian emerging market the Mongolian Stock Exchange. Meanwhile, Deutsche Boerse agreed a $10.2 billion takeover of NYSE Euronext on February 15.
These deals have put the onus on large global rivals, including exchange group Nasdaq OMX
Exchange groups such as LSE, NYSE Euronext, Deutsche Boerse and Nasdaq OMX dominated European share trading until the European Commission's 2007 Markets in Financial Instruments Directive (MIFiD) allowed the emergence of competition.
Chi-X Europe went live that year, making it the first of the alternative platforms, known as multi-lateral trading facilities (MTFs), and it was followed in 2008 by BATS Europe and Turquoise.
But the MTFs struggled to break even, launching in the midst of the financial crisis, and traders began to question their viability as early as 2009. Turquoise was sold to the LSE in February last year.
BATS Global Markets and Chi-X Europe, the most successful of the MTFs with a 16.5 percent market share, are unlisted and owned by groups of investment banks and high-frequency trading firms, of which five are common to both companies.
Joe Ratterman, chief executive of BATS Global Markets, said: "This transaction joins two successful and innovative market centres and will be a tremendous boost for competition in pan-European trading in the face of increasing consolidation among incumbent exchanges."
Deutsche Boerse's takeover of NYSE Euronext faces regulatory scrutiny. European traders are questioning whether the exchanges, which between them account for over 90 percent of European futures trading, will be allowed by the authorities to retain this dominance.
BATS Europe Chief Executive Mark Hemsley said: "The combination of NYSE Euronext Liffe and Deutsche Boerse Eurex has prompted a slew of inquiries from customers about derivatives trading and we will look to roll this out after the integration, which we expect to complete this year."
Broadhaven Capital Partners, through Beech Hill Securities, acted as financial adviser to BATS Global Markets with legal advice furnished by Davis Polk and Macfarlanes. For Chi-X Europe, Lexicon Partners acted as financial adviser with Slaughter and May as well as Alston and Bird serving as legal advisers.
Nomura Holdings Inc's <8604.T> Instinet, a large shareholder in Chi-X Europe, is being advised by Financial Technology Partners in the deal, a source told Reuters previously.
(Reporting by Luke Jeffs; Additional reporting by Paritosh Bansal in New York; Editing by Sinead Cruise, Erica Billingham and Gunna Dickson)
