Instinet seeking new investors for Chi-X Global
Agency broker Instinet is attempting to sell equity stakes in its wholly owned subsidiary Chi-X Global, the trading venue firm that in turn owns alternative trading systems Chi-X Canada, Chi-X Japan, Chi-X Australia and trading technology supplier Chi-Tech.
Sources have confirmed that Instinet held talks with six potential external parties on Friday, September 24, with a view to selling stakes in the business. If the plan is successful, Chi-X Global could follow the same ownership model as Chi-X Europe, the multilateral trading facility (MTF) that has become a powerhouse in European trading, accounting for 17.2% of European market share in August 2010. Instinet currently holds a 34% stake in Chi-X Europe, but the pan-European MTF has been the subject of a potential bid from an anonymous party, widely believed to be US-based exchange operator BATS Global Markets. Other shareholders in Chi-X Europe include BNP Paribas, Citadel, Citigroup, Credit Suisse, Fortis, Getco, Goldman Sachs, Bank of America Merrill Lynch, Morgan Stanley, Optiver, Societe Generale and UBS.
Chi-X Global also co-owns Chi-East, a joint venture non-displayed trading platform due to go live in Q4 2010, with the Singapore Exchange.
The news follows a number of high-profile management changes at Chi-X Global following concerns over running costs. CEO John Lowrey was replaced by Tal Cohen, previously CEO of Chi-X Americas, on 7 September and Ron Gould, CEO of Chi-X Asia Pacific, will leave his position on 15 October. According to sources, Chi-X Global had a burn rate of approximately US$50 million per annum, a figure seen as too high both by existing and potential owners. Gould has left the firm, while Lowrey became the CEO of MarketPrizm, the connectivity and infrastructure service arm of Chi-Tech. With these changes made, investment from third parties is now considered more likely. A source close to the situation said that several potential investors “were excited” by the progress of recent ownership discussions over Chi-X Global.
However, it remains unclear whether Chi-X Global will undergo further rationalisation before a deal with external investors is finalised.
Chi-X Europe was launched in 2007 and to date is the only MTF to have regularly turned a profit. Following the bid enquiry received on 24 August, further interest has since been shown, with Nasdaq OMX and German exchange Deutsche Boerse cited by market sources as the most likely counter-bidders. The evaluation of any bids is expected to be completed on 1 November 2010.
Chi-X Global has not yet seen the same success as its European cousin. Without the regulatory impetus to compete with incumbent exchanges that MiFID provided in Europe other markets such as Japan and Canada have seen a much smaller movement of liquidity from the primary market.
During August 2010, its first full month of operation, Chi-X Japan traded US$7.7 million worth of Japanese equities, according to Thomson Reuters Equity Market Share Reporter, a fraction of the incumbent Tokyo Stock Exchange's US$286.5 billion turnover. Chi-X Canada, which has been in operation since May 2007, has achieved a market share of around 10% of Toronto-listed stocks.
In addition, the launches of Chi-X Australia and Chi-East in Singapore, both scheduled for this year, have been impeded by regulatory approval processes.
Chi-X Global CEO Cohen was not available for comment.