Thursday, February 18, 2016

Chinese Bid for Chicago Exchange Draws Congressional Concern

  • Casin Group's acquisition faces national security review
  • Lawmakers urge block if links found to Chinese government

The planned sale of the Chicago Stock Exchange to a Chinese buyer should be rigorously investigated by U.S. national security officials and blocked if the buyer has close ties to the Chinese government, a group of U.S. lawmakers said.
The buyer -- Chongqing Casin Enterprise Group -- has many of the "traditional opaque qualities" of a Chinese company and is involved in sectors that likely require close ties to the government, 46 members of Congress said in a letter to the Committee on Foreign Investment in the U.S.
“This proposed acquisition would be the first time a Chinese-owned, possibly state-influenced, firm maintained direct access into the” $21 trillion U.S. equity marketplace, wrote 45 Republicans and one Democrat.
Casin Group’s agreement to buy the exchange has raised a host of questions since it was announced earlier this month, given it has no apparent ties to the securities industry. The company, founded in the 1990s through a privatization of state-owned assets, initially focused on developing real estate projects in Chongqing, before expanding into the environmental and financial industries. While the firm owns stakes in banks and insurers, it has no previous experience owning an exchange.

Market Foothold

The 134-year-old bourse only handles about 0.5 percent of U.S. stock trading. But the deal, if approved, would give Casin Group a foothold into the world’s largest equity market.
The exchange, though tiny, can influence the entire American equity market. U.S. regulations require that trades be routed to whatever exchange is quoting the best price for a stock at any given moment. That means activity on the Chicago Stock Exchange could sway the price of virtually any publicly traded company. It’s linked to the rest of the market through central data feeds, called the securities information processors, or SIPs, which are run by the New York Stock Exchange’s parent company and Nasdaq Inc.
When the deal was announced, Casin Group’s founder and chairman Shengju Lu said in a statement that the deal offers the company a "unique opportunity to help develop financial markets in China over the longer term and to bring exciting Chinese growth companies to U.S. investors.”

Scrutinizing Takeovers

CFIUS, which is led by the Treasury Department and includes the Defense and State departments, reviews acquisitions of U.S. businesses by foreign investors. It has been closely scrutinizing takeovers by Chinese buyers amid a wave of overseas investment from the country. Dutch company Royal Philips NV said last month it was canceling the sale of its lighting-components business to a Chinese-led consortium due to opposition from CFIUS.
The Treasury Department declined to comment on the letter, saying CFIUS reviews are confidential. Representatives of Casin Group couldn’t immediately be reached for comment.
"Should you determine CCEG maintains a close relationship with the Chinese government - and therefore the Chinese military - we would urge CFIUS to deny this acquisition," the lawmakers wrote.
CFIUS has approved a foreign takeover of a U.S. stock exchange before. Germany’s Deutsche Boerse AG was cleared to buy the New York Stock Exchange’s parent, NYSE Euronext, in 2011, though the transaction fell apart for other reasons.

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