Chinese make another US acquisition: Chicago Stock Exchange

A Chinese- led investor group is buying the Chicago Stock Exchange, also known as CHX,to eventually list Chinese companies on it, and also may use CHX's technology and modelto start an equities exchange where it is based in China, according to the CEO andchairman of the 134-year-old bourse.John Kerin also told Reuters that under the new ownership, the exchangewould have thefunding for efforts like revamping its listings program."They like our strategy, and theywant us to continue to execute on it," he said in an interview.

The investor consortium led by Chongqing-based Casin Enterprise Group said on Feb 5 itwill acquire the exchange, which handles about 0.5 percent of the average daily tradingvolume in the US. It would be the first purchase of a US exchange by investors from China, but not to aforeign entity. A unit of Germany's Deutsche Boerse AG acquired the InternationalSecurities Exchange in 2007. Bloomberg reported that the deal values the exchange at less than $100 million, accordingto a person familiar with the matter, who asked to not be identified because the terms werenot disclosed publicly. The exchange said the deal is expected to close in the second half of the year, and willrequire the approval of the US Securities and Exchange Commission.The acquisition also might be reviewed by the Committee on Foreign Investment in theUnited States (CFIUS), which has jurisdiction to examine an acquisition of a US businessthat will result in foreign control. CFIUS is only interested when the transaction raisesnational security or critical infrastructure concerns.

"It is possible that CFIUS could be interested in this transaction because financial servicescan be considered part of the critical infrastructure of the US," Laura Fraedrich of JonesDay in Washington told China Daily. "However, given the very small percentage of the USmarket that this exchange represents, CFIUS may determine that it can be comfortableclearing the deal, especially since it is a highly-regulated industry and those regulationswill continue in place regardless of the owner."

Joe Saluzzi, co-head of trading at Themis Trading and author of Broken Markets, said thedeal may raise security concerns."Does foreign ownership open up any potential for information leakage to someone whocan take advantage of it? As an investor, I would raise an eyebrow," Saluzzi told CNNMoney. "As long as the information is secure, I don't have any problem with it."Anne Salladin of Stroock&Stroock&Lavan LLP said that she would be "very surprised ifCFIUS did not have an interest in taking a look at this deal."

The CHX acquisition came in a week that saw two major purchases by Chinese companies:the $1.6 billion purchase announced on Feb 4 by Beijing Enterprise Holdings for Germanwaste-management company Energy from Waste, and the $43 billion deal on Feb 3 byChina National Chemical Corp for Switzerland-based seed and pesticide maker SyngentaAG, the biggest foreign acquisition ever by China. Syngenta said last week it would file itplans with CIFIUS. Founded in 1997, privately held Chongqing Casin Enterprise Group has interests in realestate, infrastructure, financial services and environmental protection. Casin Group has821 employees with operations in Beijing, Hong Kong, Sydney and other locations.

"We have reviewed CHX's plans to improve market share through new growth initiativesand fully support them.Together, we have a unique opportunity to help develop financial markets in China overthe longer term and to bring exciting Chinese growth companies to US investors," ShengjuLu, Casin Group founder and chairman said in a statement.

The investor group intends to preserve CHX's current business operations and proprietarytrading platform, andKerin would remain as CEO and chairman.With locations in Chicago and New Jersey, the CHX is mainly used by market makers thatbuy and sell the most active exchange-traded funds and hedge their positions using futureson CME Group Inc's Chicago Mercantile Exchange.

The CHX, a subsidiary of CHX Holdings Inc, is minority-owned by a group includingE*Trade Financial Corp, Bank of America Corp, Goldman Sachs Group Inc and JPMorganChase &Co, according to the company. The minority shareholders are also selling theirstake, Kerin said.