Is CME Group (CME) Mulling Over The NEX Group Acquisition?

Per media reports, CME Group Inc. (NASDAQ:CME) is contemplating the acquisition of NEX Group Plc and to that end, the company is in talks with the latter. On a positive note, the buyout could result in the acquirer becoming a cross-border trading powerhouse as sources reported.

London-based NEX Group, formerly known as ICAP (LON:NXGN) plc, focuses on electronic markets and post trade business. According to sources, NEX Group with a market value of $3.5 billion facilitates trading currencies, Treasuries and other assets. While CME Group leads with about 90% market share in the global futures trading and clearing services. Its options business too gained traction. The combination if materializes, will likely intensify competition.

Patrick Young, an adviser to exchanges, foresees “a huge potential risk to LSE’s clearing house LCH, if the clearing business went to CME”.

CME Group is concentrating more on over-the-counter clearing services on interest rate swaps and foreign exchange and therefore has plans to exit the credit default swap clearing business by mid-2018.

Notably, in 2017, CME Group shuttered its London-based derivatives exchange and clearing house, CME Europe and CME Clearing Europe, citing customers’ preference to trade more via CME Group’s U.S. platform. Terminating operations might result in annual savings to range between $10 million and $12 million, which in turn will likely impact 2018 in a huge way. The same is also expected to free up over $150 million in capital.

Nonetheless, CME Group will continue to have its considerable operational base in London as the region is integral to the company’s global growth strategy. It is probably this reason that propels the futures giant to mull over investing in London-based NEX Group.

CME Group consistently weighs on growth-accelerating strategic initiatives. The company also makes a note of structural shifts in both the crude and natural gas markets as the United States is steadily emerging as the swing producer in these markets. Hence, the company anticipates to capitalize on and benefit from these changes. Also, to cater to the growing demand for evolving cryptocurrency markets, CME Group launched bitcoin futures on Dec 18, 2017.

Shares of CME Group have surged 38.4% in a year’s time, outperforming the industry’s rally of 29.8%. Efforts to expand and cross-sell through strategic alliances, acquisitions, new product initiatives as well as a strong global presence should drive growth in the near term.

CME Group carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks from the finance sector are TD Ameritrade Holding Corporation (NASDAQ:AMTD) , Federated National Holding Company (NASDAQ:FNHC) and HFF, Inc. (NYSE:HF) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

TD Ameritrade Holding provides securities brokerage and related technology-based financial services to retail investors, traders and independent registered investment advisors (RIAs) in the United States. The company came up with an average four-quarter positive surprise of 17.07%.

Federated National engages in insurance underwriting, distribution and claims processing in the United States. The company delivered an average four-quarter beat of 2.2%

HFF, Inc. provides commercial real estate and capital market services to the users and is a provider of capital, primarily in the United States commercial real estate industry. The company pulled off an average four-quarter positive surprise of 22.41%.

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