Some of the world's largest exchange operators may soon clash as interest in NEX Group PLC heats up.
With CME Group Inc. confirming that it is weighing a bid to acquire the London-based electronic-trading company, rival bourses such as Intercontinental Exchange Inc. and London Stock Exchange Group PLC could also emerge as potential suitors for NEX, several industry analysts said.
An acquisition of NEX, which specializes in facilitating trading in foreign exchange and Treasury markets, would provide any of the three exchange operators a chance to operate trading in the underlying markets that are the basis for many of the heavily traded derivative products the exchanges already trade.
The exchanges could create newfound savings for clients, as well as for themselves, by facilitating trading of the Treasury notes at the same venue that Treasury futures can be traded, for example. By doing so, clients would only have to pay fees at one venue and avoid much of the cost and confusion that comes with routing orders to multiple trading venues.
"It's always great when you can bring cash products and derivative products together," Morningstar analyst Michael Wong said in an interview. "It just seems like a good fit."
NEX, formerly known as ICAP PLC, operates several electronic-trading platforms and trade efficiency businesses. The company, which has a market capitalization of £3.29 billion, or about $4.61 billion, reported that its group revenue rose 3% year over year, on a constant-currency basis, for the quarter ending Dec. 31, 2017.
Combining underlying cash securities with corresponding futures would potentially mark a first in the exchange space, according to a March 19 research report from Sandler O'Neill analyst Richard Repetto, who wrote that a CME acquisition of NEX could set "a unique precedent."
CME has until April 12 to submit a formal offer to acquire NEX, based on London Stock Exchange rules. By that time, ICE and the London Stock Exchange could begin to express interest. A spokesperson for ICE declined to comment on whether the company was interested in pursuing NEX. A London Stock Exchange spokesperson did not respond to a request for comment.
Any deal for NEX would be the latest move in a wave of consolidation that has made a gigantic impact on the trading industry throughout the last decade. In that time, revenues from exchanges' legacy businesses such as trading and clearing have faltered, prompting exchange operators to develop new business lines and pursue deals.
"Scale is the name of the game," Aite Group analyst Javier Paz said in an interview. "Exchanges may just be in the market for gaining that scale through acquisition."

Since 2008, ICE has made 16
"When you look at any M&A opportunities, they have to make complete sense for CME, and our discipline will be there," CME Chairman and CEO Terrence Duffy said Feb. 1 during an earnings conference call.
Expected interest in NEX could lead to the company's valuation swelling. Exchange operators could end up paying more than double NEX's March 14 share price of £6.56, or about $9.21, to acquire the company, and still have the deal be accretive, Equity Research Desk analyst Diego Perfumo said in an interview.
NEX shares have jumped since Bloomberg initially reported on CME's interest in NEX on March 15, spiking more than 30%.
A deal for NEX may have to overcome regulatory concerns though, particularly for CME and ICE, as regulators across the globe have axed a number of cross-border exchange deals of late.
The SEC in February rejected a Chinese-tied investor group's bid to acquire the Chicago Stock Exchange Inc. And it is not just U.S. regulators that have put the kibosh on exchange deals in recent years. An attempted merger between Germany-based Deutsche Börse AG and the London Stock Exchange was blocked by the European Commission in March 2017 over antitrust concerns. In 2016, the U.K. Competition and Markets Authority raised anticompetitive concerns over ICE's purchase of energy market analytics company Trayport, which was ultimately sold to TMX Group Ltd. in October 2017.
While a sale of NEX to a U.S. exchange operator would also be subject to the U.K. Competition and Markets Authority, it is unlikely to meet the same fate that ICE's acquisition of Trayport did, said Aite's Paz, who noted that similar deals have previously been approved in Europe.
