2020 M&A Roundup - The deals shaping derivatives markets

Transactions hint at continued exchange consolidation, the rising value of data, ESG's growth and other trends

5 February 2021


It was a busy year for dealmakers in the capital markets sector even in the midst of a global pandemic.

Several multi-billion-dollar deals were announced or wrapped up in 2020, including Morgan Stanley's acquisition of E*Trade, the London Stock Exchange Group's acquisition of Refinitiv, and S&P Global's merger with IHS Markit. There were also many smaller deals as banks, brokerages, exchanges and technology vendors looked for ways to accelerate their growth. Young fintech companies also saw a flurry of fundraising and mergers, particularly among firms specializing in institutional-grade solutions for trading cryptocurrencies.

Six deals from 2020 had particular importance to derivatives markets because they embodied broader trends transforming the industry. Those trends include consolidation among exchanges, the rising value of data and analytics, the popularity of "do it yourself" trading platforms, the surge of interest in environmental, social and governance (ESG) investing and cryptocurrencies, and the decision by the Chinese government to allow foreign banks to take control of their joint ventures in the domestic brokerage industry.

The European exchanges were particularly active in 2020, with two very different strategies. Euronext and SIX followed the traditional path, buying Borsa Italiana and Bolsas y Mercados Espanoles, respectively, to increase their share of European securities and derivatives markets. LSE went in the opposite direction, divesting Borsa Italiana in order to win regulatory approval for its acquisition of Refinitiv, and sending a clear signal that it saw higher returns in data and analytics. Similarly, Deutsche Börse made two deals to expand into trading technology and shareholder services, and it made a small investment in a fintech to deepen its participation in the ESG trend.

On the other side of the Atlantic, Cboe pursued both strategies, extending its footprint in the equities markets but also buying two small technology companies to expand its data services. Cboe also completed the acquisition of EuroCCP, a deal first announced in 2019 that will provide the foundation for its plans to enter the European equity derivatives markets.

Among banks and brokers, there was only one large deal — Morgan Stanley's acquisition of E*Trade. But there were plenty of smaller deals. One trend that stood out was investments by venture capital firms in technology platforms geared to the rapidly rising number of active individual traders. The other noteworthy trend was the investments made by several international banks to take control of their joint ventures in China's brokerage industry. Those moves became possible only after China relaxed its rules on foreign ownership.

Morgan Stanley – E*Trade

In February, Morgan Stanley announced an agreement to acquire E*Trade, one of the largest brokerages in the US, in an all-stock transaction valued at $13 billion. The deal was the largest by a US bank since the financial crisis of 2008 and created a new powerhouse in brokerage and wealth management.

A key attraction for Morgan Stanley was the opportunity to bring in more than 5 million customer accounts and $360 billion in assets. In addition, E*Trade's focus on retail investors and active individual traders will complement Morgan Stanley's traditional investment banking business and its financial advisory service for high net-worth individuals.

As it turned out, the timing of the deal worked out well for Morgan Stanley. The explosion in retail participation in trading that was triggered by the pandemic led to huge growth in the online brokerage industry. By July, E*Trade's retail business had grown to 6 million accounts and $400 billion in assets.

The acquisition of E*Trade also gave Morgan Stanley one of the most popular platforms for equity options trading, the fastest growing segments of the US listed derivatives markets. The foundation for that business was E*Trade's 2016 acquisition of OptionsHouse, a Chicago-based options broker, for $725 million, and it has only grown in value over the last year as the pandemic prompted millions of people to open brokerage accounts and try their hands at trading. The number of derivatives trades on E*Trade's platform jumped to 220,000 per day during the first half of 2020, more than double the total for the entire previous year.

Euronext – Borsa Italiana

The European exchange landscape saw a big shakeup in 2020 with the sale of Borsa Italiana by the London Stock Exchange Group to Euronext, the rapidly growing group of exchanges centered in Paris and Amsterdam.

LSE said in late 2019 that it saw Borsa Italiana as a strategic asset and it had no intention of selling the Milan-based exchange, which it acquired back in 2007. But in order to win European regulatory approval for a massive $27 billion acquisition of data and infrastructure provider Refinitiv, LSE had to divest the Italian exchange.

Euronext beat out two other European exchange groups — Deutsche Börse and SIX Group — in the bidding for Borsa Italiana, which owns a stock exchange, a derivatives exchange, a bond trading platform and a clearinghouse. Key to Euronext's success was the support of two Italian financial institutions, Cassa Depositi e Prestiti and Intesa Sanpaolo, that agreed to become strategic investors in the combined group.

For both sides, the bulk of the value in the deal was in the combination of stock markets, but the consolidation of their listed derivatives businesses added to the attraction. Euronext ranks as the second largest derivatives exchange in continental Europe, with 175.6 million futures and options traded in 2020. The merger with Borsa Italiana, which had 25.1 million futures and options traded in 2020, will allow Euronext to bring more contracts onto its trading platform and strengthen its ability to compete with other exchanges in the region, particularly in the equity derivatives business.

S&P Global – IHS Markit

In November, S&P Global announced its plan to merge with IHS Markit in an all-stock deal that values IHS Markit at $44 billion. The deal – one of the world's biggest acquisitions announced in 2020 – will bring together two of the largest providers in the increasingly competitive market of financial analytics and information. 

S&P is widely known for its ratings and index businesses, but it has also been carving out its place in the world of financial information, becoming the third-largest global market data provider behind Bloomberg and Refinitiv.

In 2015, its predecessor company McGraw Hill Financial acquired data and research provider SNL Financial for $2.23 billion. Since then, S&P Global has made several deals to build out its data products, including the 2018 acquisitions of supply chain data provider Panjiva and artificial intelligence company Kensho Technologies. IHS Markit will be S&P Global's largest acquisition to date.

IHS Markit itself was created from the $13 billion merger four years ago of IHS, an information provider that caters to a variety of industries, and financial information and technology provider Markit. Markit provides a range of pricing and reference data for financial assets and derivatives, including credit default swaps and collateralized loan obligations, as well as trade processing technology for OTC derivatives.

S&P Global said that the two companies have highly complementary products. For instance, both provide data and analytics related to the energy market and oil and gas assets. S&P Global Platts is the main provider of benchmark prices for key raw materials, including oil and refined products, while IHS Markit's maritime products include ship tracking, port data and information on trade flows. Other complementary assets include the data science capabilities of Kensho Technologies with IHS Markit's Data Lake, a catalogued platform that unites IHS Markit's vast data sets.

The deal marks the latest round of consolidation among data providers looking to scale as demand for data and analytics surges in the increasingly computerized financial markets. In September 2020, Intercontinental Exchange completed its acquisition of US mortgage data provider Ellie Mae for $11 billion. In January 2021, EU competition regulators formally approved London Stock Exchange's $27 billion takeover of Refinitiv.

Miami International – Minneapolis Grain Exchange

If ever there was an odd couple in the world of exchange mergers, this was it. Miami International Holdings, the parent of the MIAX family of options exchanges, announced in August that it had struck a deal to acquire the Minneapolis Grain Exchange for a combination of cash and stock.

MGEX is one of the oldest futures exchanges in the world, having been founded in 1881 as a marketplace for wheat. But in recent history it has been eclipsed by other exchanges and remains limited to a handful of agricultural futures contracts with a relatively tiny amount of trading volume.

MIAX is far younger, having executed its first trade in 2012, and growing much more rapidly. Until recently it was wholly focused on electronic trading of equity options in the US. Last year it had more than 827 million contracts traded, making it the fourth largest among US options markets and the 15th largest derivatives exchange in the world.

So why would a fast-growing financial exchange want an old-school commodity exchange? The answer is that the acquisition gives MIAX access to the futures markets, which in the US is subject to a different set of rules and regulations than the securities markets. MGEX is registered with the US Commodity Futures Trading Commission as both a "Designated Contract Market" and as a "Derivatives Clearing Organization". As a result, the deal gives MIAX the ability to use the Minneapolis exchange's regulatory status to quickly roll out new futures contracts.

For example, MIAX has been able to use MGEX as the springboard for futures on SPIKES, its proprietary volatility index. That index is based on the prices of options traded on MIAX's exchanges, which captured almost 12% of all US equity options trading in 2020.

Bitcoin futures are also a potential addition. Through the acquisition MIAX inherited an agreement between MGEX and Bitnomial, an exchange backed by a group of firms including Coinbase Ventures, Digital Currency Group and Jump Capital. Bitnomial received CFTC approval in April 2020 to offer bitcoin futures with physical delivery, and it is planning to clear those contracts through the MGEX clearinghouse.

The potential for MIAX to use the MGEX clearinghouse for new products such as futures on volatility indices and bitcoin creates some challenges for its clearing members, which are used to participating only in agricultural markets. To address those concerns, MGEX has modified its rules to provide clearing members with more separation between the different pools of risk. Whether that separation is sufficient to satisfy the old guard remains to be seen.


Singapore is the third-largest trading center in the global foreign exchange market, trailing only London and New York. For the Singapore Exchange, that presents a huge opportunity, and in 2020 the exchange took a big step in that direction with the acquisition of BidFX, an institutional FX trading platform, for $128 million. 

BidFX originally was a subsidiary of TradingScreen, the trading system vendor, before it was spun off in 2017. SGX acquired a 20% stake in the company in March 2019, and then bought out the remaining 80% from the other shareholders last year. BidFX counts hedge funds, asset managers and regional bankers among its clients, and its trading volume has set records in recent quarters.

SGX already has a thriving FX futures business based on Asian currency pairs, but that's just a drop in the bucket compared to the over-the-counter market. According to the Bank for International Settlements, the FX market is the largest financial market in the world, with average daily turnover in the OTC market amounting to $6.6 trillion per day in traded volume. By comparison, exchange-traded FX derivatives volume accounts for about 2% of the volume in the OTC market.

The acquisition of BidFX provides SGX with an entry point into the global OTC FX market and an opportunity to establish a one-stop venue for OTC and futures, with pre-trade data and analytics, trade execution and post-trade clearing.

"The future of FX lies in the ability for market participants to benefit from price discovery, liquidity and transparency for both OTC and listed futures trading, in a single unified venue," the bourse's CEO Loh Boon Chye said in a statement when the deal was announced.

"With BidFX as part of the SGX Group, we can now serve a wider FX community with more comprehensive solutions and enhanced distribution capabilities, while bringing together the two growing and mutually-reinforcing pools of liquidity," Loh said.

Ion – Broadway

ION Group, one of the top software providers in the derivatives and commodities markets, announced in February 2020 an agreement to buy 85% of Broadway Technology, a specialist provider of electronic trading systems for fixed income and foreign exchange markets.

ION's move on Broadway was the latest in a long series of acquisitions. The companies that it has acquired, in whole or in part, include Fidessa, MarketFactory, DealLogic, FFastFill, Reval, OpenLink and Acuris. Those acquisitions have helped make ION one of the most widely used vendors in the financial technology industry.

This time, however, ION's ambitions ran into an obstacle when the UK Competition and Markets Authority launched an investigation into the deal's potential impact on competition. The CMA noted that ION was "by far the largest supplier" of trading software to banks and market makers in the fixed income markets, giving it "significant bargaining power" with its customers.

ION ultimately was able to gain approval, but only after agreeing to sell Broadway's fixed income business to a group of private equity firms led by Tyler Moeller, Broadway's chief executive and co-founder. ION retained Broadway's FX business, which consists of technology related to order management and market connectivity.

Other noteworthy deals


NinjaTrader, a provider of trading software and brokerage services for retail traders of futures, received a majority growth investment led by Long Ridge Equity Partners, a private equity firm, with participation from DRW Venture Capital, the venture capital arm of DRW Holdings. The Denver-based brokerage said the investment would help accelerate its goal of providing institutional-grade tools for retail traders around the world. Twelve months later, the company announced a move into futures clearing with the acquisition of TransAct Futures, a non-clearing futures commission merchant based in Chicago.


GTS, a proprietary trading firm based in New York, announced the completion of its acquisition of Barclays' automated options trading unit. As part of the transaction, which originally was announced in December 2019, approximately 40 Barclays personnel became full-time GTS employees. GTS said the unit provides price quotes in more than 735,000 individual securities across 13 options exchanges, and trades approximately 2% of all exchange-traded equity options volume in the US.

Cryptocurrency custody firm BitGo expanded its footprint in the digital securities marketplace via the acquisition of Harbor, a security token platform. Harbor's subsidiaries include a broker-dealer regulated by the Financial Industry Regulatory Authority and a transfer agent supervised by the US Securities and Exchange Commission. Terms of the deal were not disclosed.

Nasdaq acquired OneReport, a privately held provider of corporate ESG data management and reporting services. The move bolstered Nasdaq's ESG reporting and workflow solutions.

Cboe acquired real-time risk analytics firm Hanweck Associates. The move added to Cboe's Information Solutions segment to offer more insight into trade data including portfolio optimization, risk management and execution services. Cboe also acquired portfolio management platform FT Options to help provide greater insight into balance sheet risks for its customers.


Morgan Stanley received approval from the China Securities Regulatory Commission to take a majority stake in its China securities joint venture, Morgan Stanley Huaxin Securities Company, by increasing its holding from 49% to 51%. The joint venture, which is based in Shanghai, engages in underwriting of stocks and bonds and proprietary trading of bonds.


BitGo acquired institutional-grade digital asset management platform Lumina. The move further expanded BitGo's cryptocurrency products and services, allowing clients to access reporting around taxable events and possible tax liabilities, among other things. Terms of the deal were not disclosed.

Investment research provider Morningstar acquired research and data provider Sustainalytics. Morningstar had been a minority owner of Sustainalytics since 2017 and purchased the remaining stake. The deal helps Morningstar offer more information on ESG criteria across various asset classes.

BMO Financial Group acquired Clearpool Group, a New York-based provider of algorithmic and electronic trading services and an independent agency broker-dealer operating in the US and Canada. The transaction delivered new capabilities to BMO's electronic trading platform. Clearpool remains a separate brand under BMO Financial Group as well as a separate broker-dealer.


Coinbase, one of the largest cryptocurrency trading and custody platforms, acquired crypto prime brokerage platform Tagomi in May. The acquisition bolstered Coinbase services for proprietary traders and institutional investors.

IHS Markit acquired Singapore-based company Catena Technologies, which specializes in regulatory trade reporting and technology services. Catena Technologies had already been a component of IHS Markit's Integrated Reporting, a global, multi-asset class service for regulatory trade reporting since 2016. IHS Markit has integrated the expertise and technology from Catena into MarkitSERV, its OTC derivatives trade processing platform.


SIX Group, a Switzerland-based market infrastructure provider, acquired 93% of Spanish exchange Bolsas y Mercados Españoles for roughly €$2.6 billion. The move made the combined entity the third-largest European financial market infrastructure group and the 10th largest globally by revenue. BME's subsidiaries include a derivatives exchange that traded 40.5 million futures and options in 2020.

Credit Suisse increases its ownership of its securities joint venture in China from 33% to 51%, granting it control for the first time over the business. The joint venture, Credit Suisse Founder Securities, provides a range of capital markets services to clients in the domestic China market, including securities underwriting and trading.


Standard Chartered bought an equity stake in Cobalt, a provider of post-trade infrastructure for foreign exchange markets. Other investors in the London-based fintech include Citi, IHS Markit, and Singapore Exchange.

Cboe Global Markets closed the acquisition of EuroCCP. The deal, which had been announced in December 2019, gave it control over a European clearinghouse and a stepping stone for its planned launch of a European derivatives exchange.


Cboe Global Markets completed its acquisition of MATCHNow, the largest equities alternative trading system in Canada. Cboe said the deal would expand its geographic presence and diversify the product capabilities of its equities business.

R.J. O'Brien & Associates, the Chicago-based futures brokerage, bought Lombard Forte Securities, an interdealer broker based in Dubai. RJO said the deal would broaden its geographic reach and expand its product offering into credit and equities markets.

Intercontinental Exchange announced an agreement to buy Ellie Mae, which operates a technology platform for residential mortgage lending, for $11 billion. This was the third and largest deal made by ICE to extend its reach into the US mortgage industry and another example of the company's evolution beyond its roots in commodity futures trading.


Deutsche Börse announced an agreement to buy a majority interest in Quantitative Brokers, an independent provider of advanced execution algorithms and data-driven analytics for global futures, options and interest rate markets. The German exchange said the deal would reinforce its strategy of building stronger connections to institutional investors and other "buyside" market users.


TP ICAP, the world's biggest interdealer broker, agreed to buy equity and corporate bond electronic trading network Liquidnet for $575 million. The deal gives TP ICAP a strong dealer-to-client trading venue in equities, and growth potential in the electronic trading of bonds and swaps in competition with companies such as Bloomberg, Tradeweb and MarketAxess.

Citadel Securities reached an agreement with IMC, the Dutch proprietary trading firm, to buy its market-making business on the floor of the New York Stock Exchange. Citadel said the deal would reinforce its position as the largest designated market maker on the NYSE. IMC had been a designated market maker on the NYSE since 2014, when it acquired the DMM business from Goldman Sachs.

DriveWealth, a US provider of API-based brokerage infrastructure, announced a $56.7 million Series C round to strengthen its technology, make strategic acquisitions, and grow the organization. DriveWealth provides the infrastructure for other fintech companies in Europe, Asia and Latin America to provide retail investors with access to the US stock market. The funding round was led by Point72 Ventures, an arm of Steve Cohen's hedge fund, and included Mouro Capital, a fund spun out from Banco Santander, and the UK venture arm of Fidelity Investments.


J.P. Morgan increased its control over its securities joint venture in China, buying 20% from one of its local partners for $26.5 million and bringing its ownership up to 70%.

Galaxy Digital, one of the leading investment banks in the digital assets space, acquired two specialized cryptocurrency businesses based in Chicago: DrawBridge Lending and Blue Fire Capital. DrawBridge operates managed accounts for cryptocurrency investors and offers loans using blockchain technology. Blue Fire is a proprietary trading firm that specializes in market making for digital assets. Galaxy Digital noted that the pair of acquisitions gave the firm a "strong regional hub in Chicago" and give it more connections with derivatives firms looking to enter digital asset markets.

Nasdaq agreed to buy Verafin, a Canadian provider of fraud detection software, for $2.75 billion. Nasdaq said Verafin's cloud-based suite of anti-financial crime software solutions added greater depth to its existing regulatory technology services.

Deutsche Börse agreed to buy an 80% stake in Institutional Shareholder Services, a data and analytics provider that advises shareholders on corporate governance issues. The German group said the deal would position it as a "leading global provider" of ESG data and analytics. Also in November, Deutsche Börse led a $15 million funding round for Clarity AI, which provides a platform for analyzing the societal and environmental impact of investment.


London Stock Exchange Group announced that it was nearing completion of the regulatory approval process for its $27 billion takeover of financial market data and infrastructure provider Refinitiv. The deal was originally announced in August 2019.

Goldman Sachs moved to take 100% ownership of its securities joint venture in China, signing an agreement to buy the 49% owned by its partner, Beijing Gao Hua Securities.

Interactive Brokers added 70,000 customers and $3 billion in client equity through an agreement with Folio Financial, a digital wealth management platform founded by former US regulator Steve Wallman, to buy its self-directed retail brokerage segment. The deal followed Goldman Sachs' purchase of Folio Financial in September. Goldman retained Folio's clearing and custody services for investment advisers, which had $11 billion in assets under custody.

MarketAxess Holdings, the bond trading platform, bought a regulatory reporting service from Deutsche Börse. MarketAxess said the deal would help the company "extend the full front-to-back trade lifecycle services that we offer, from trading and data through to reporting and regulatory compliance."

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