The Chicago Mercantile Exchange Inc. today announced that it is acquiring Swapstream, an electronic trading platform for interest rate swaps.
The CME said that the deal is designed to expand its presence in the over-the-counter interest rate derivatives market. Swapstream, a market-leading multilateral electronic trading platform for interest rate swaps, will operate as a wholly owned subsidiary of CME and will remain based in London.
Under the agreement, the CME will purchase 100% of the share capital of Swapstream, all of its operating assets and intellectual property. Total cost to CME to acquire Swapstream is US$15 million, including US$6 million for the share capital and procuring the repayment of US$9 million in outstanding debt. There is a contingent consideration component of the transaction payable only if the company meets specific performance hurdles. The acquisition is subject to approval by the Financial Services Authority in the UK, which regulates Swapstream as an alternative trading system.
The acquisition of Swapstream is the latest addition to CME’s portfolio of strategic initiatives to strengthen its presence in the OTC marketplace. In May, Reuters and CME announced the creation of FXMarketSpace, the world’s first centrally-cleared, global FX marketplace through a 50/50 joint venture. In April, the exchange launched CME Clearing 360, a clearing solution for OTC market participants that is an extension of existing CME Clearing services and offers customers the flexibility of OTC transactions with the risk management efficiencies of centralized clearing.
Launched in 2003, Swapstream is a neutral, inter-dealer platform that currently supports electronic trading of Euro and Swiss Franc denominated medium-term (1 to 10 year) and long-term (10 to 50 year) interest rate swaps, the CME noted. “Swapstream offers advanced functionality for trading interest rate swaps that provides dealers with the flexibility to interact with one or more banks, one or more brokers, or any combination of these to build their own marketplace and distribute their liquidity. The platform also features a sophisticated permission-based system that allows market participants to publish customized prices and pricing curves based on both credit and counterparty considerations,” it added.
“The acquisition of Swapstream is part of CME’s strategy to further leverage our transaction processing capabilities and attract new customers to our products and follows on our other OTC initiatives,” said CME chairman Terry Duffy. “CME and Swapstream will bring greater operational and processing efficiencies to the global interest rate swap market while providing added value for our shareholders.”
“This strategic initiative further diversifies our global interest rate business, brings us into the fast growing US$164 trillion in notional value OTC interest rate swaps market and moves us further out the interest rate curve in terms of our product offering,” said Craig Donohue, CME chief executive officer. “Given current market trends, we also see potential synergies between Swapstream and our CME Clearing 360 offering, which allows OTC market participants to ‘substitute’ an interest rate swap for CME Eurodollar futures. We will continue to evaluate growth opportunities that will allow CME to expand into other OTC markets.”
“We are excited that CME has chosen Swapstream as the vehicle through which it will accelerate its OTC interest rate strategy,” said Stephane Rio, chief executive officer, Swapstream. “The OTC derivative trading community has expressed a clear desire for greater transparency and post-trade efficiencies. Through the combination of Swapstream’s established market position of offering the greatest liquidity available and innovative functionality and CME’s global distribution, post-trade processing and clearing capabilities, Swapstream is now poised to set the industry standard for electronic interest rate swaps trading.”