Shares in UK electronic trading firm, NEX Group PLC (NXG), jumped more than 32% after saying it has received a preliminary approach from US-based exchange operator CME Group.
NEX said discussions with CME are at an early stage and there can be no certainty an offer for the company will be made.
READ: NEX strives for ‘community focused’ approach as the ‘other London stock exchange’
CME is one of the world’s biggest exchange groups that owns the Chicago Board of Trade (CBOT) and the Chicago Mercantile Exchange while NEX is a financial technology company that matches buyers and sellers of bonds, swaps and currencies. A combination of the two would create a cross-border trading powerhouse.
NEX, which was previously called ICAP until the sale of its voice broking business to TP ICAP in 2016, was founded by its chief executive, Michael Spencer, a former treasurer of the Conservative Party.
CME must announce whether it intends to make an offer for NEX by April 12 under stock market rules.
In late afternoon trading, Nex shares were 32% higher at 884.5p.
In the past two years, its shares have risen more than 40% market volatility caused by the Brexit vote and the Donald Trump’s presidential election win fuelled trading on its platforms.
Previous takeover attempts by foreign exchange operators
An offer for NEX wouldn’t be the first attempt by a foreign exchange operator to buy into a UK business.
Deutsche Boerse and London Stock Exchange had agreed a merger but the European Commission rejected the proposal last year, saying it would have resulted in a monopoly in the processing of bond trades.
READ: Killer timing: EU Competition boss delivers coup de grace to London Stock Exchange, Deutsche Bourse merger
Since NEX and CME are smaller, regulators and politicians might find a potential merger easier to accept.
But Patrick Young, an adviser to exchanges, said it was widely believed that CME would not bid for any assets in Britain under the “Brexit situation was absolutely sorted”.
Last year CME decided to close two operations in London after racking up losses of more than US$100mln, saying its customers preferred using its US operations.
Could offer for NEX result in a bidding war?
Young said CME could be looking to clear NEX product to support in-house business, in a move that would impact rival clearing houses like the LSE’s LCH unit.
"Will this open a bidding war? The LSE is in danger of missing another opportunity and it's a huge potential risk to its clearing house LCH if the clearing business went to CME," Young told Reuters.
"The InterContinental Exchange will also have to consider NEX carefully as well," he said, referring to the owner of the New York Stock Exchange."
Analysts at Liberum said they would not be surprised to see competing interest in NEX as it is an “important strategic asset”.
“In a competitive situation we can easily see NEX commanding a price of +1000p,” they said.
NEX reports its full year results at the end of this month and Liberum expects its cost cutting programme will deliver strong growth in earnings per share.
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