Banks

BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

Continue Reading

Economy

Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

Continue Reading

Currencies

Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

Continue Reading

Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

Continue Reading

Banks

Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

Continue Reading

Categorized | Currencies, Financial

CBOE-Bats tie-up herald big changes ahead


Posted on September 27, 2016

Chicago Board Options Exchange...A CBOE plaque is seen near the front entrance to the Chicago Board Options Exchange in Chicago, Illinois, U.S., on Thursday, May 20, 2010. CBOE Holdings Inc. set a price range for its planned initial public offering that values the owner of the Chicago Board Options Exchange at about $2.87 billion. Photographer: Tim Boyle/Bloomberg©Bloomberg

It has been known as the small, unheralded exchange from Chicago but at a stroke CBOE Holdings has forced a re-evaluation of its standing in the market.

The surprise $3.2bn deal to buy Bats Global Markets is the largest in the CBOE’s 43-year history and momentarily draws the spotlight away from its crosstown rival CME Group, the world’s largest futures exchange.

    And despite the low-key approach from both sides, it is also a deal that promises to redraw the exchange industry landscape in North America.

    According to the managements, a combination is about putting together the CBOE’s popular and long-coveted dominance in trading Vix and S&P 500 options with Bats’ acknowledged cutting-edge technology.

    “We are the product innovator in the space,” says Ed Tilly, chief executive of CBOE. “Bats is the low-cost disrupter in this space. Together, and with the data spun off their exchanges, feeds perfectly into our growth and the industry’s move into more sophisticated strategies.”

    Yet as analysts and rival industry executives are aware, it is a more transformational deal than that.

    It moves CBOE out of the close-knit futures and options world of Chicago, the self-styled “trading capital of the world”, and brings it for the first time the unfamiliar territory of US and European cash equities, exchange traded funds and foreign exchange.

    Kansas-based Bats, once a start-up backed by global banks and launched by a former high-speed trader, has expanded also through M&A to overtake Nasdaq in US share trading with a 20 per cent market share, second to the New York Stock Exchange. It also has a fifth of all European equities. The group went public in April.

    “CBOE is buying growth, scale and diversification,” says Richard Repetto, an analyst at Sandler O’Neill in New York. “You can spread your revenues over a smaller cost base. You don’t have to depend on any single set of products.”

    For market participants, the deal may be felt most keenly in the US options market, where Bats’s entry five years ago precipitated a fierce competition for customers. That hurt industry pricing and has driven consolidation. This year Nasdaq
    bought the International Securities Exchange, which operates three equity options markets, from Deutsche Börse. Analysts wonder if fewer parent companies would mute the fierce competition.

    This opens the door for them to charge a lot more for market data. Bats has not monetised its market data and infrastructure as significantly as Nasdaq and NYSE. That is probably worth the whole price of admission

    – Larry Tabb, co-founder of Tabb Group

    “The options market could change a bit. The deal probably marks a bottom in terms of multi-list options pricing. Bats has been the primary driver of compression over the past five years,” says Andrew Bond, an analyst at RBC Capital Markets.

    Multi-list options are those on single stocks and ETFs versus index options where CBOE has a proprietary business. Once the CBOE-BATS deal closes, the two parent companies combined will control 10 out of 14 exchanges, according to Tabb Group, a capital markets consultancy.

    The two companies have few other overlaps. “In cash equities I don’t think anything really changes — they don’t operate in the same businesses at all,” says Christian Bolu, an analyst at Credit Suisse. The same applies in foreign exchange. For that reason, few expect the deal to hit antitrust issues.

    Both realised they were smaller niche exchanges compared to the two largest exchanges, CME and ICE, which both had market capitalisations in excess of $30bn. A CBOE-Bats tie-up is not only likely to skirt competition issues their larger rivals may face, it will give them scale. The combined group will have a market capitalisation of more than $8bn.

    “There are limits to the exchange consolidation, there are nationalistic limits,” says Chris Concannon, Bats chief executive. “Obviously, when you look at the exchange business, they are multibillion companies now . . . but clearly there are cycles of consolidation that occur and you have to remember there are new entrants into the market.”

    But in one respect the deal resembles the growth path taken by another US exchange that went from start-up to one of the world’s largest in just 16 years — ICE.

    ICE has switched focus in recent years to selling lucrative data to investors. It has a mixture of equities, commodities and futures on one platform. Some think the new exchange will do the same.

    “This opens the door for them to charge a lot more for market data,” says Larry Tabb, co-founder of Tabb Group. “Bats has not monetised its market data and infrastructure as significantly as Nasdaq and NYSE. That is probably worth the whole price of admission.”

    Additional reporting by Arash Massoudi in London