SecFinex, the six-year-old, London-based electronic trading platform for securities lending, has sold 51 per cent of its equity to Euronext. The platform has sought an investor for some time, and came close to selling itself to inter-dealer broker ICAP earlier this year, but major shareholders Societe Generale and Fortis eventually demanded too high a price.
Subject to the approval of regulators, the acquisition should be completed in the first quarter of 2007. “We welcome Euronext as the main shareholder, and are convinced that its reputation, sales network and experience as a market operator, combined with the widely acknowledged expertise of SecFinex in securities lending, will provide a solid foundation for growth in a rapidly developing trading and exchange landscape,” says Allen Postlethwaite, founder and CEO of SecFinex.
Launched in 2000, the SecFinex platform is a Web-based system whose technology is now in need of upgrading. Though the high hopes with which it was started six years ago at the height of the Internet bubble were not fulfilled, SecFinex is used by a growing cross-section of lenders, borrowers and intermediaries, including some of the major securities lending houses in Europe.
SecFinex says the investment by Euronext will enable it to extend its client base to members of Euronext and Euronext.liffe, ultimately facilitating access to post-trade processing and so raising the degree of automation. For Euronext, the purchase aims to give clients easy, cost-effective and automated access to the fast-growing European securities lending markets.
Consultants Celent estimate outstanding balances in European securities lending exceeded US$500 billion in European equities last year, and Spitalfield Advisors say the global market is now worth in excess of US$4 trillion. Global balances are estimated to increase by more than 20% over the next three years, with the European markets contributing most of this growth.
In an OTC market where transactions are still completed mostly over the telephone, growth in volumes should automatically lead to stronger demand for electronic trading, which is more efficient, less expensive and thus more profitable, says SecFinex. ICAP is certainly convinced of this, and is working on its own electronic trading platform for securities lending. The volume of transactions traded electronically has increased five fold since 2003 and is expected to double over the next three years.
SecFinex is to remain an independent company, with Euronext represented on its managing board. Soci?t? G?n?rale Corporate & Investment Banking and Fortis Merchant Bank remain as the other main shareholders too, and say they have “joined Euronext in committing to develop SecFinex’s market position. This structure will facilitate growth at SecFinex by providing the resources to become the leading force in online securities lending in Europe.”
“Acquiring an interest in SecFinex will enable us to diversify the high added-value services available to our clients and enhance the liquidity of the securities lending market in Europe,” says Marianne Demarchi, Executive Director Cash Markets & Listing, in charge of Marketing and Business Development at Euronext. “This acquisition should give fresh impetus to growth in this area in Europe and is a new move towards bringing banking partners into a fast-growing and promising market.”