NYSE to Close SecFinex - Analyst Blog
December 01 2011 - 10:44AM
Zacks
Yesterday, Financial Times reported that NYSE
Euronext Inc. (NYX) is mulling the closure of its European
securities lending platform unit – SecFinex – in order to merge
itself successfully with Frankfurt-based Deutsche Boerse, as
proposed earlier this year.
Based in London and founded in 2000, SecFinex is a global
electronic, web-based lending & borrowing trading platform. In
the same year, it also launched a private bilateral market,
introducing the first stock loan electronic platform in the
European region.
Further in
March 2007, NYSE acquired a 51% stake in SecFinex, whereby the
latter operates as a subsidiary of NYSE’s LIFFE Holdings plc.
Société Générale and ABN Amro own the remaining 49%
stake.
Meanwhile,
NYSE’s decision to shut down SecFinex is based on the
underperformance of the business. SecFinex had about 200
outstanding loans on its platform. Previously in 2009, SecFinex
launched central counterparty clearing on its trading platform,
allying with US’ Depositary Trust and Clearing Corp., constarined
by its ongoing debt and economic risks, the US regulatory pressure
and the bankruptcy of Lehman Brothers.
Given the
abysmal performance of SecFinex, NYSE seeks to reposition this
business as the latter no longer desires to inject more
funds.
The decision
is also inspired by the need to reduce the risk exposure and
expenses, as much as possible, from NYSE’s business portfolio in
order to smoothen the merger (worth $9 billion) process between the
company and Deutsche Bourse.
Meanwhile,
the European Union Commission (EUC) antitrust commission is probing
the matter and expects to come out with a ruling that could include
clearing an operation or imposing pre-conditions such as the
selling of some assets, in order to mitigate competition concerns
of prime rivals such as NASDAQ OMX Group
Inc. (NDAQ) and
CME
Group Inc. (CME). However, the fact that
the deal will enable the combined entity to own 90% of the futures
exchange traded in Europe is disconcerting.
On the flip
side, a blockage of the deal is also possible, if the companies
involved do not commit themselves to solving these concerns,
although such a scenario is unusual. EUC is expected to give
out its report-card by the middle of this month. Hence, we
currently maintain a Neutral stance on NYSE, which is also
reflected in the Zacks #3 Rank #3 that implies a short-term Hold
rating.
On Wednesday, the shares of NYSE closed at $28.56, up 4.6%.
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