Exchange licenses are becoming increasingly rare and valuable, prompting a flurry of takeout interest in the tiny Chicago Stock Exchange Inc.
The latest suitor linked to the Chicago-based trading venue is the Intercontinental Exchange Inc.-owned New York Stock Exchange. The largest equity exchange operator in the U.S. is reportedly in talks with the Chicago Stock Exchange about a potential deal, The Wall Street Journal reported March 30.
The Chicago Stock Exchange has been accepting acquisition offers for several weeks now, after regulators killed its previously agreed-upon $20 million deal with a China-based investment group.
Since then, the Chicago bourse has been tied to potential suitors ranging from traditional exchange operators inside and outside the U.S. to cryptocurrency trading venues. The exchange operator occupies less than 1% of U.S. equity market share and has struggled to position itself in the increasingly competitive exchange space dominated by ICE, Nasdaq Inc. and Cboe Global Markets Inc.
But companies interested in CHX are likely eyeing its exchange license more than anything, which could explain the $70 million price tag the New York Stock Exchange is reportedly offering, several industry experts said.
"We have a handful of dominant exchange operators that seem to be stockpiling licenses," Healthy Markets Association CEO Tyler Gellasch said in an interview.
Applying to become a stock exchange tends to be a lengthy process that opens companies up to scrutiny across the industry. The newest U.S. exchange operator, IEX Group, Inc., endured comment letters, public scrutiny and regulatory inquiries over the course of nearly two years to gain the SEC's approval.
An acquisition of the Chicago Stock Exchange could allow a company like ICE to snatch up another license without having to kickstart another brand-new trading venue. ICE operates three U.S. stock exchanges and will launch its fourth April 30.
The Chicago Stock Exchange would only be a small addition to the New York Stock Exchange's collective market share, but it would provide the exchange operator another venue to bring in market data revenues and to try a different market structure such as a new pricing model, another speed bump or cryptocurrency trading, Aite Group analyst Spencer Mindlin said.
"Having an exchange license ready to go positions [the New York Stock Exchange], if they buy it, to do something different," Mindlin said in an interview.
The Chicago Stock Exchange has been linked to a handful of cryptocurrency exchanges, as regulators have started to bear down on such companies. On March 9, the SEC warned virtual currency exchanges that they need to be registered with the agency as either alternative trading systems or as national securities exchanges.
A deal for the Chicago Stock Exchange and its exchange license could be a fast track to regulatory compliance for cryptocurrency exchanges such as Coinbase. The New York Stock Exchange is a minority investor in Coinbase, Inc.
Spokespeople for the New York Stock Exchange and Chicago Stock Exchange declined to comment.