A consortium of 13 banks and hedge funds has agreed to buy a minority stake in Chi-X Europe, the pan-European MTF owned by Instinet Europe. Instinet retains a majority stake in the MTF. The terms of the deal were not disclosed, and Chi-X declined to reveal the size of the stake taken by the new investors because of non-disclosure arrangements in the deal.
The consortium comprises: BNP Paribas, Citadel, Citigroup Investment Group, Credit Suisse, Fortis, Getco Europe, Goldman Sachs, Lehman Brothers, Merrill Lynch, Morgan Stanley, Optiver, Société Générale and UBS. The list includes eight of the nine investment banks that are backing Project Turquoise, a rival European MTF set to launch in the second quarter of 2008. It also includes two non-Turquoise banks – Fortis and Lehman Brothers, and three hedge funds.
By getting outside investors on board, Instinet has fulfilled a long-standing goal for Chi-X. “Our business model for Chi-X said from the very beginning that we believed we would open the ownership structure to the participants that were most interested in supporting Chi-X, and most importantly that share the same vision of competition being able to change the European trading landscape,” explains Tony Mackay, president and managing director of Instinet Europe.
He adds, “Instinet formed Chi-X as a separate entity to Instinet’s European brokerage from the very start and we observed the trend in the US, where ECNs and ATSs, are effectively a joint ownership model between the platform operator and the major liquidity providers.”
Instinet may also welcome further external investment in Chi-X. “We’ve got a balance between the liquidity providers and the platform operators that people are comfortable with at present, but it may well continue to change over time,” says Mackay.
When creating and developing Chi-X, Mackay says Instinet solicited feedback and advice from many of the firms that are now shareholders. As such, he feels there will be little change to the running of Chi-X as a result of the new investment. “Instinet has ceded a management team into Chi-X that will continue to run the entity, so we are not looking to pull in people from the investors to come and work for us.”
Nevertheless, the investors will have more say in the running of the MTF than before. “We have given them slightly more access to work with us on the future plans and developments for Chi-X,” says Mackay. “If we decide to bring on new markets or other such initiatives, naturally we would consult with the new partners about what we’re planning to do.”
He denies, however, that having to consult 13 new shareholders on decisions will make Chi-X slower to respond than it was before. “Even before this equity placement was completed, we already had regular meetings with the major players, both one-on-one and collectively, where we would solicit feedback and help with some of
the strategic planning,” says Mackay.