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NYSE to Close SecFinex (revised) - Analyst Blog

Posted: 12/2/2011 1:48:00 PM
Referenced Stocks: CME;NDAQ;NYX

Yesterday, Financial Times reported that NYSE Euronext Inc. ( NYX ) is mulling the closure of its European securities lending platform unit, SecFinex.

Based in London and founded in 2000, SecFinex is a global electronic, web-based lending & borrowing trading platform. In the same year, it also launched a private bilateral market, introducing the first stock loan electronic platform in the European region.

Further in March 2007, NYSE acquired a 51% stake in SecFinex, whereby the latter operates as a subsidiary of NYSE's LIFFE Holdings plc. Société Générale and ABN Amro own the remaining 49% stake.

Meanwhile, NYSE's decision to shut down SecFinex is based on the underperformance of the business. SecFinex had about 200 outstanding loans on its platform. Previously in 2009, SecFinex launched central counterparty clearing on its trading platform, allying with US' Depositary Trust and Clearing Corp., constarined by its ongoing debt and economic risks, the US regulatory pressure and the bankruptcy of Lehman Brothers.

Given the abysmal performance of SecFinex, NYSE seeks to reposition this business as the latter no longer desires to inject more funds.

The decision is also inspired by the need to reduce the risk exposure and expenses, as much as possible, from NYSE's business portfolio in order to smoothen the merger (worth $9 billion) process between the company and Deutsche Boerse.

Meanwhile, the European Union Commission (EUC) antitrust commission is probing the matter and expects to come out with a ruling that could include clearing an operation or imposing pre-conditions such as the selling of some assets, in order to mitigate competition concerns of prime rivals such as NASDAQ OMX Group Inc. ( NDAQ ) and CME Group Inc. ( CME ). However, the fact that the deal will enable the combined entity to own 90% of the futures exchange traded in Europe is disconcerting.

On the flip side, a blockage of the deal is also possible, if the companies involved do not commit themselves to solving these concerns, although such a scenario is unusual. EUC is expected to give out its report-card by the middle of this month. Hence, we currently maintain a Neutral stance on NYSE, which is also reflected in the Zacks #3 Rank #3 that implies a short-term Hold rating.

(We are reissuing this article to correct a mistake. The original article, issued December 1, 2011, had erroneously referred to this action as related to the company's pending Deutche Borse deal, which is not the case.)

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