Continuing its acquisitive streak, CME Group says it is acquiring London-based market data company, Credit Market Analysis (CMA).
The deal with CMA, a provider of credit derivatives market data, will provide CME Group with greater exposure to the rapidly growing $46 trillion credit derivatives market.
Prices for credit derivatives are not transparent, nor are they publicly available. CMA offers two products to over-the-counter (OTC) credit derivative players including asset managers, hedge funds and other buyside participants.
CMA QuoteVision is a price discovery tool that offers a clear structured view of live indicative quotes. CMA DataVision is an end-of-day pricing service that provides objective buyside consensus price verification data. This is important to enable organisations to more accurately evaluate their end-of-day positions.
Craig Donohue, CEO of CME, says: "It is impossible to overestimate the importance of accurate, timely and reliable sources of market data to the smooth functioning of financial markets, especially in today’s environment. Working together, we believe that we can expand CMA’s existing services in the credit derivatives markets, as well as to additional asset classes that would benefit from additional transparency or central counterparty clearing services."
Under the agreement, CME Group, through its subsidiary CME Swaps Marketplace
Ltd., will purchase 100% of the share capital of CMA.
CME didn’t disclose the financial terms of the deal, which it announced on 25 March, but says the acquisition offers the potential to leverage its clearing and trade execution capabilities to enhance CMA’s products to create greater value and efficiencies for its customers.
CME already offers credit derivatives contracts, but trading volume has typically been low for these products. Buying CMA could help the exchange to understand the market better.
As a wholly owned subsidiary, CMA will remain headquartered in London, and will retain the CMA name. Chief executive officer Laurent Paulhac will continue to head the company, and the rest of the management team is also expected to remain in place, CME says.
CME Group chairman Terry Duffy says that when the exchange considers diversification, it prefers to "look beyond asset class diversity and think more strategically in terms of products and services where we believe we can deliver innovation and create new value for the market."
The acquisition comes as several rival exchanges, including NYSE Euronext, Deutsche Börse and Nasdaq OMX, are also targeting the OTC derivatives market for their expansion.
OTC trades traditionally occur between two known parties off an exchange. The arrangement lets investment banks develop exclusive financial products for trading, but it does not necessarily match prices against an entire market or guarantee the credit of the buyer or seller.
The push by exchanges to enter the OTC market has been driven by the development of technology that can be used for exchange-based trading as well as for the execution of OTC transactions electronically, as opposed to through brokers by phone.