Chi-X Europe and BATS in exclusive talks

TWO of Europe’s biggest alternative equity trading venues are in exclusive talks, it was announced yesterday, in a sign that the sector is starting to consolidate.

BATS Global Markets, which operates the third-largest US stock exchange and Europe’s second-biggest alternative trading platform, is in talks to buy Chi-X Europe, Europe’s second-largest stock exchange.

The two platforms combined would create the biggest exchange in Europe by volume.

In a statement, the companies said they had “entered exclusive negotiations regarding the potential sale of Chi-X Europe to BATS Global Markets”.

Chi-X, which facilitated trading of €372.2bn (£315.4bn) turnover in the third quarter of this year, has been effectively up for sale since August when it announced a third party had enquired about buying it.

The exchange, established in 2007, hired London-based investment bank Lexicon Partners to advise it and reportedly discussed a takeover deal with US exchange Nasdaq and the NYSE Euronext among other bidders before settling on BATS.

Sources told City A.M. that a takeover of Chi-X Europe should be welcomed by shareholders, as BATS is not yet profitable in Europe while Chi-X only began turning a profit in 2010.

The difficulty in becoming profitable is largely due to the competition for trades between up to 40 alternative platforms in Europe.

BATS Europe has a weekly turnover of about €10-15bn and about a 12 per cent market share of FTSE100 trading, data from technology provider Fidessa shows, while Chi-X Europe has about a 25 per cent share of FTSE100 trading. BATS’ US exchange has weekly turnover of about $15-20bn, according to Fidessa’s data.

Equity trading in Europe has fragmented since European regulation removed national stock exchanges’ monopolies over where stocks could be bought and sold in November 2007.

Alternative trading venues have flourished, but their high running costs and the limit on total trading volumes mean they are “fighting

for a shrinking pool,” and many have an “unsustainable” model, the source added.