ICE gains Asia hub with Singapore bourse deal

Reuters

By John McCrank and Rafael Nam

NEW YORK/MUMBAI, Nov 19 (Reuters) - IntercontinentalExchangeGroup said on Tuesday it would buy the SingaporeMercantile Exchange (SMX) in a $150 million deal that gives it afoothold in trading and clearing in Asia, the main engine ofgrowth for the commodities market.

ICE said it would buy the operation from embattled Indiantrading platform provider Financial Technologies (India) Ltd, less than a week after closing its $11 billiontakeover of NYSE Euronext.

"Events and circumstances led to an opportunity for us toacquire it and we jumped on it," ICE Chief Executive JeffSprecher said on a call with analysts.

SMX operates futures markets in Singapore across metals,currencies, energy and agriculture, but has attracted limitedvolumes since it started in 2010.

ICE is not actually interested in the existing business,which is currently losing money, but rather in buying theability to offer and clear trading in Asia, Sprecher said.

"We are really buying the infrastructure and the fact thatwe would avoid a three year process if we were start on our own,and the fact that it's not particularly easy in Asia for aWestern company to start an exchange and clearinginfrastructure," he said.

The deal can be compared with ICE's purchase ofChicago-based credit default swap clearinghouse The ClearingCorporation, which closed in 2009, said Chief Financial OfficerScott Hill. He said that was also a money-losing business, itwas relatively small, and while ICE was not interested in theproducts cleared there at that time, it served a set ofcustomers ICE knew and moved it into an area where itscompetitors were not.

"We saw the CDS world evolving at that time towards clearingand bought an asset to serve it. We see the potential of theenergy world maybe trading more in Asia than it does today, andwe want to be prepared to serve that," Hill said at a conferenceon Tuesday.

Last quarter, Atlanta-based ICE earned $22 million from CDSclearing, a 40 percent increase from a year earlier. Theopaqueness of derivatives like CDSs - used to insure againstfalls in bond prices - badly exacerbated market uncertaintyduring the 2007-2009 financial crisis, and regulators have beenpushing such products onto trading platforms and into centralclearing to reduce systemic risk.

Hill said ICE's customers in Asia have been vocal abouttheir concerns over the regulatory uncertainly in the UnitedStates and Europe, and that they may not want to continue tooperate in those places.

"We've got a very significant Asian base energy customer setthat we wanted to continue to serve, and so we felt like the SMXpurchase gave us the optionality to serve that customer setlocally, whereas in the past, we served that customer setlargely out of the UK," he said.

OPPORTUNITIES

ICE's acquisition of NYSE Euronext gives it control ofLiffe, Europe's No.2 derivatives market. It initiated thepurchase in December, four months after losing out to Hong KongExchanges and Clearing Ltd in a bid to buy the LondonMetals Exchange.

ICE first reached out to SMX's parent, FinancialTechnologies, about a possible deal last spring, Sprecher said.

Since then, Financial Technologies has run into regulatorydifficulties and the company's stock is down more than 80percent this year. The share slide accelerated after theexchange operator's spot commodities exchange, National SpotExchange (NSEL), suspended trading in August. It has sincestruggled to square off outstanding contracts worth over 55billion rupees ($880 million).

Financial Technologies is now under investigation by Indianregulators and police over suspected violations of rules oncontract durations at NSEL.

"If, in a couple of years, their losses hadn't come down,they would have contemplated selling (SGX), but it's come beforethat scheduled period of time simply because of what's happeningon the domestic front with all the regulatory scrutiny," saidAshish Chopra, an analyst at Motilal Oswal Securities in Mumbai.

Financial Technologies said it would use the proceeds of thesale to repay foreign currency loans.

Once the deal is complete, ICE will operate 17 exchanges andsix clearing houses in eight countries.

"No one has the footprint that we have now," said Sprecher."We are in the U.S., Canada, Brazil, London, Continental Europe,and now in Asia in Singapore, and that's where our customersare."

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