Global markets operator Nasdaq OMX will acquire the eSpeed electronic trading platform for US treasury notes and bonds as the fixed income market undergoes wholesale regulatory-driven change.
Nasdaq OMX has agreed with inter-dealer broker BCG Partners to purchase eSpeed for US$750 million in cash and 15 million Nasdaq shares in Nasdaq over 15 years, which, based on its current share price, comes to just north of US$1.2 billion.
The platform – which trades two-, three- five-, seven-, ten- and 30-year instruments – will become part of Nasdaq OMX's Transaction Services business alongside markets in equities, derivatives and other exchange-traded products.
"We view the eSpeed platform as a compelling extension of NASDAQ OMX's strategic direction as eSpeed is a major player in the US Treasury market, has derivative-industry margins, 70% of its revenue is derived from fixed contracts and it has a long-standing presence on trading desks around the world," said Bob Greifeld, CEO of Nasdaq OMX.
BGC will continue to supply voice, hybrid and electronic brokerage of off-the-run US Treasury instruments as well as voice brokerage for on-the run US Treasuries.
Greifeld said the purchase supported the exchange group's strategy of diversification. "We are building a diverse, customer-centric portfolio of corporate, trading, technology and information solutions," he added.
Nasdaq OMX Nordic already trades Swedish and Danish bonds, while Nasdaq OMX's new London-based derivatives trading platform, NLX, is awaiting regulatory approval.
Nasdaq OMX said in a statement the purchase is expected to boost earnings within the first 12 months after the acquisition is sealed, and said the US Treasury market would grow in coming years as current US fiscal uncertainties subsided.
Basel III global banking standards compel banks to hold risk-weighted capital against the instruments held on their balance sheets, which is expected to push bond trading onto exchange-like platforms.
The new rules are also expected to drive a change in traditional roles of market participants with institutional investors increasingly becoming liquidity makers as the prohibitive capital requirements reduce banks' presence as bond liquidity providers.