08.18.2017
By John D'Antona

For the Moment, CHX Purchase Approval on Hold

Set. Down. Hike!

Wait…there’s a flag on the play. The referees have conferred and the call is delay of game, Jay Clayton.

If the last news on the proposed acquisition of the Chicago Stock Exchange by Chinese investors were a U.S. rules football game and series of downs, it might well have resembled the last graf. The U.S. Securities and Exchange Commission, namely Chairman Jay Clayton, has delayed until further notice the motion to allow the Windy City-based exchange to be sold to North America Casin Holdings. Clayton, in a statement, said the entire full commission needs to review the potential sale to the foreign investors.

The move highlights the intense criticism and worry regarding a foreign entity ownership of such a financial institution. The proposed sale, which was announced back in February of 2106, has drawn much scrutiny from industry commentators to Congress to even President Trump himself.

The delay comes despite an SEC staff approval of the sale. Normally, SEC staff approvals are a proxy for the entire commission and its recommendations are followed without question. The process for appDespite the delay, the Chicago Stock Exchange was pleased with the initial result.

“The board and management of Chicago Stock Exchange (CHX) are delighted with the SEC staff’s order granting approval of the Exchange’s rule filing regarding the acquisition of CHX Holdings, Inc., by North America Casin Holdings, Inc,” the exchange said in a press statement. “CHX recognizes the significant time that the Committee on Foreign Investment in the United States and the SEC staff spent analyzing the proposed transaction prior to their approval.”

Furthermore, CHX doesn’t see the additional scrutiny as a means to scuttle the $$27 million dollar sale.

“We are confident that, upon further review by the Commissioners, they will also conclude that this transaction is consistent with the Exchange Act and will allow CHX to significantly add to Exchange staff, provide needed capital to the small and medium-sized businesses that create jobs, and bring international business back to the United States,” they added.

The exchange and the City of Chicago have both been vocal proponents of the sale. The former saying the investment would help the bourse fund its operations, install advanced trading technology and make it more competitive against its larger exchange brethren. The latter has argued a sale and revamping of the 135 year-old trading floor would bring investment and jobs to the city.

In a 2015 interview with Traders Magazine, the newly elected CEO of the Chicago Stock Exchange, John Kerin, told of his plans to help refocus and guide the bourse in today’s advanced market structure. In the interview, Kerin said the exchange knows it cannot compete head-to-head with NYSE/ICE, NASDAQ OMX or BATS/Direct Edge – rather, its goal is to be relevant in the21st century and grow its business.

Kerin told Traders that CHX is trying to make a name for itself regionally, in both the Chicagoland area or in New Jersey (where it’s collocated) and serve underserved niche markets. He declined to define what “underserved” meant to him; however, he did say that the exchange wanted to address market fairness issues and focus on U.S trading.

“We want to carve out niches that are underserved and have identified several of them,” Kerin said. “First, we need to build up some of our infrastructure to get this order flow.”

Since then, CHX has announced its “Liquidity Taking Access Delay” or LTAD order type, which incorporates a speed bump or delay in how an order is routed. The speed bump or delay concept is similar to what exchange operator IEX uses in its routing but, as CHX’s described, is different. However, CHX, like IEX, wants to bring liquidity back to the lit or public trading markets and away from the dark pools or other off-board trading destinations.

LTAD is a direct response to recent declines in CHX volume and liquidity in the SPDR S&P 500 trust exchange-traded fund (“SPY”), which the Exchange attributes to latency arbitrage activity in SPY first observed at CHX in January 2016.

The Chicago Stock Exchange handles approximately less than 1% of all daily stock transactions.

 

 

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