Cboe sets sights on Europe's derivatives market with EuroCCP deal

Latest acquisition will put Cboe in direct competition with Deutsche Börse and ICE

13 December 2019


Cboe Global Markets, one of the world’s largest exchange holding companies, has agreed to acquire the 80% of EuroCCP that it does not own for about €36 million in a move that will help it to expand into the European equity derivatives trading and clearing space.

The takeover, which is expected to close in the first half of 2020, will give Chicago-based Cboe outright ownership of a clearinghouse for the first time. The deal also will give it full control of a platform used by many of its customers for clearing equity trades in Europe. On average, EuroCCP clears 4 to 5 million trades daily, representing almost 95% of the pan-European equities market.

Cboe is buying out four other shareholders in the Amsterdam-based clearinghouse: ABN AMRO Clearing Bank, Euronext, Nasdaq, and The Depository Trust & Clearing Corp. The terms of the deal were not disclosed, but in a statement the same day Euronext said it would receive net proceeds of €9 million. That indicates Cboe will pay roughly €36 million in total.

Euronext also said that it will continue to leverage its long-term derivatives clearing agreement with LCH SA, the Paris unit of the LCH Group. Euronext has an 11.1% equity stake in that clearinghouse and uses it for the clearing of equity and commodity derivatives transactions on the markets it operates in Amsterdam, Brussels, Lisbon and Paris.

Cboe's initial goal is to enhance its existing pan-European equities business. The company established a major presence in the European cash equity markets in 2017 when it acquired its all-electronic competitor Bats Global Markets for $3.4 billion, and currently it ranks as Europe's largest stock exchange by value traded.

Longer term, however, the company plans to use the newly acquired clearinghouse to support an extension of its derivatives franchise into Europe. That will put it in direct competition with the major European exchanges such as Eurex, Euronext and ICE Futures Europe. Eurex is currently the dominant player, with a 65% share of the 1.79 billion equity futures and options that traded on European exchanges in the first 10 months of the year.

Ripe for competition?

"We believe ownership of EuroCCP will enhance our current European equities business, while providing opportunities to potentially diversify our business, including trading and clearing derivatives, in the future," said Ed Tilly, chairman, president and chief executive officer of Cboe Global Markets, in a statement announcing the deal on Dec. 10.

Cboe cautioned that the cost of building this new trading and clearing business will weigh on earnings over the next three to four years, but longer term it expects the investment to generate positive financial returns.

Analysts applauded the move. "We see the acquisition and planned European derivatives build as a rather low cost/risk means of extending a core competency to a new market," Citi analysts wrote in a note to clients on Dec. 10.

Cboe is already a heavy hitter in the U.S. equity derivatives market where it offers a diverse range of products. Its four equity options exchanges have a combined market share of 38.4% as of October, compared to 34% for Nasdaq and 16% for NYSE. It also has developed a suite of volatility options and futures based on proprietary indices such as VIX.

The acquisition will also put the spotlight on Cécile Nagel, EuroCCP's chief executive officer. Nagel joined in Sept. 2018 from the London Stock Exchange Group where she was most recently head of LSE Markets global product development and LSE exchange traded products.

“Cboe is a staunch advocate of open access and interoperability, values which EuroCCP has long promoted, with an established track record of servicing clients globally and providing innovative products across numerous asset classes. We believe this transaction positions EuroCCP for continued success,” Nagel said.

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