Traders work on the floor at the Chicago Mercantile Exchange in Chicago, Illinois (Photographer: Frank Polich/Bloomberg News)

Chinese Bid for U.S. Exchange Clears National Security Review

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  • (Bloomberg) -- The Chicago Stock Exchange has cleared its major hurdle as it attempts to sell itself to a Chinese-led investment group.

    The Committee on Foreign Investment in the U.S. on Wednesday approved the exchange’s proposed sale to Chongqing Casin Enterprise Group Co. and others, said Drew Mauck, a spokesman for the Chicago Stock Exchange. Signed in February, the deal is still subject to approval by the U.S. Securities and Exchange Commission.

    The Chicago Stock Exchange is attempting the sale at a potentially fraught time for business relationships between the U.S. and China. CFIUS scrutinizes purchases of U.S. companies by foreign buyers to identify national-security issues, and there was no guarantee that it would approve the proposed sale. Earlier this month a China-based group’s attempted takeover of German semiconductor-equipment supplier Aixtron SE crumbled as U.S. President Barack Obama moved to block the deal on the grounds of national security risk.

    A subsidiary of CHX Holdings Inc., the Chicago Stock Exchange is the second-smallest stock exchange in the U.S., handling less than 0.5 percent of equity volume. Even so, the exchange would provide a foothold in the $25 trillion market for U.S. equities, and could become a place for Chinese companies to list. The takeover bid was valued as less than $100 million, Bloomberg News reported when an agreement was signed. If the sale succeeds, it would be the first time a Chinese company purchased a U.S. exchange operator. 

    “They can use the cash to create new products and automate certain systems to improve execution,” said Steven Todd, an associate professor of finance at Loyola University’s Quinlan School of Business in Chicago. “I don’t see them being a major player though,” Todd added. “They’re small scale at this point.”

    The U.S. election of Donald Trump, who has already brought into question the state of U.S. relations with Taiwan and future trade deals, could add another wrinkle to the arrangement.

    “I wonder if they’d have approved it in the new administration,” said Craig Pirrong, a finance professor at the University of Houston, referring to Trump’s election. “The relationship has already started out somewhat confrontational before he even assumes office.”

    Bloomberg