Man Group plc announced on July 27, that it has bought a 70% stake in the United States Futures Exchange (USFE), the official name of Eurex’s U.S. subsidiary Eurex US, and the name it will go by in the future. Man paid $23.2 million for the stake and agreed to invest another $35 million.
Kevin Davis, chairman and chief executive of Man’s brokerage arm, Man Financial, will become the USFE chair, while Eurex US boss Satish Nandapurkar will stay on as USFE chief executive.
Man plans to reduce its stake to below 50%, acting as a sort of hands-on private-equity firm, building the Chicago operation and then selling shares to hedge funds. Davis said, during a press briefing announcing the deal, the move was made to further develop derivatives products for hedge funds and the retail market space. “Hedge funds are constantly searching for new trading opportunities.”
Andreas Preuss, CEO of Eurex, said at the press briefing that the deal will allow USFE to offer products that were not previously offered in an exchange environment. Specifically, Preuss said the relabeled USFE will offer OTC type products that previously have traded in a bilateral environment and offer them on an exchange with central counterparty clearing.
Eurex had been looking for a partner for Eurex US since last year when it grew apparent that regulatory hurdles would prevent them from rolling out their entire global clearing arrangement.
It also shows that the wave of deal making sweeping the derivatives industry is far from over. A source at Credit Agricole confirmed that French giants Crédit Agricole (Calyon) and Société Générale (Fimat) are in talks to merge their futures businesses, both of which are based in the United States. Such a deal would form the world’s third-largest futures operation in terms of customer funds, behind UBS and Goldman Sachs.
USFE is targeting the first quarter of 2007 to launch new products. Davis says no decision has been made on the existing currency futures and interest rate products, which will be reevaluated over the next few months, but USFE appears to be going in a different direction. Preuss says their model will target creating innovative new products as opposed to the past model of attempting to migrate volume from one exchange to another.
By Steve Zwick and Yesenia Salcedo