NEX CEO Sees Opportunity for Opportunities after CME Deal

Executive says he expects CME group to continue investing in fintech startups after takeover.

A London bus at St Paul's

Despite the notable omission of NEX Opportunities from current documents pertaining to the takeover of NEX Group by the Chicago Mercantile Exchange (CME) Group, NEX's CEO says he expects the group to continue identifying and investing in fintech startups after the deal’s closure.

On March 29, the CME made a formal offer to acquire NEX Group in a cash-and-shares deal that values NEX at around $5.4 billion (£3.9 billion).

The rationale for the deal largely centers on NEX’s electronic-trading offerings, including foreign-exchange platform EBS and BrokerTec, which is the leader in US Treasurys trading, along with NEX’s post-trade businesses including TriOptima.

However, NEX has also been aggressive in recent years investing in early-stage fintech startups through its Euclid Opportunities vehicle, now known as NEX Opportunities after NEX emerged from Icap’s sale of its voice-broking arm to rival interdealer broker Tullett Prebon in 2016.

Through that arm, NEX has made a range of investments stretching from seed capital through to Series C funding rounds in firms as varied as RSRCHXChange, OpenFin, Axoni, Cloud9, Enso, and OpenGamma.

Some of those firms have even been brought in-house. However, NEX Opportunities was not mentioned in either the initial offer released on March 29 or in slides accompanying an analyst presentation.

However, during a call with journalists held on the same day to discuss the offer, NEX Group CEO Michael Spencer said that he expects the same practice to continue in the enlarged group.

“The Nex Opportunities project we started about five or six years ago has been very effective for us, and very successful for us,” Spencer said, in response to a question from WatersTechnology. “I think it’s worth bearing in mind that [legacy] Icap funded TriOptima as a startup in 2002 when it was an idea, not even a business, and that project obviously turned out extremely well, and TriOptima is a very successful and profitable business for us. We found there has been value in this entrepreneurship, in locating and investing in startup businesses, and we expect to continue to do that.”

CME’s acquisition of NEX is subject to regulatory and shareholder approvals. Under UK takeover rules, other interested parties have 21 days to submit a counter-offer for NEX, which cannot hold a shareholder vote before that—CME shareholder approval is not required for the deal to proceed.

Brexit Bull

Assuming the various approvals are received, NEX and CME say they expect the deal to close in the second half of 2018. Following the move, the group headquarters of the enlarged CME Group will be in Chicago, while its European headquarters will be in London.

“London already is CME’s European headquarters, it will remain that way and only get bigger from a London perspective,” said CME chairman and CEO, Terry Duffy, in response to a question from WatersTechnology on the same call.

While the CME already has a significant presence in the British capital, employing several hundred people there, it has also pulled back on its European operations in recent years, closing both CME Europe and CME Clearing Europe in 2017. As such, the move is also a renewed vote of confidence in the city’s future, as the UK’s imminent departure from the European Union has seen financial services firms of all stripes set up significant operations in other European cities. This is to avoid being locked out of the single market or lose “passporting” rights after Brexit, which allow them to offer products and services throughout the bloc.

“From our point of view, and Terry and I are in complete agreement about this, notwithstanding Brexit, London is going to be the most important financial center within Europe—and this is not a pro- or anti-Brexit, politically-partisan opinion whatsoever,” said Spencer, who will become a special adviser to CME and join its board after the deal closes. “NEX has made appropriate moves to passport some of our businesses into Europe, and in any case, it has a big operation in Stockholm, a smaller operation in Milan, and we’re passporting the BrokerTec electronic platform into Amsterdam. We are absolutely not taking a Brexit view at all, but London is the right place for the enlarged CME business to headquarter itself in Europe.”

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