Nasdaq Inc. NDAQ has agreed to acquire Chi-X Canada, an Alternative Trading System for the Toronto Stock Exchange (“TSX”) and TSX Venture Securities, from Chi-X Global. Details of the transaction remain undisclosed. The transaction is expected to culminate in first-quarter 2016. With Chi-X Canada – a subsidiary of Chi-X Global – in its portfolio, Nasdaq will be able to access the Canadian equities market.
Chi-X Canada facilitates trading of the TSX and TSXV listed securities. The acquisition complements the company’s strategy of expanding in North America where Nasdaq presently operates several trading locations in cash equities, options, commodities, fixed income and other financial instruments. Chi-X Canada boasts two platforms, Chi-X Canada and CX2 –– the only equity trading locations in Canada offering tailor-made smart order routing to all market centers.
Chi-X Canada takes into account about 22% of the order flow of the S&P/TSX Composite securities in Canada. Hence, the addition of the company is expected to add to Nasdaq’s bottom line and returns on capital. Also, the transition is unlikely to affect Nasdaq's financial leverage or capital return strategy.
Concurrently, Chi-X Canada is poised to benefit from the transaction, which should enhance its capabilities. The company should also be able to capitalize on new product and asset class prospects.
Over a decade, Canada’s GDP has grown more than 50% in U.S. dollars, and is 16% inflation-adjusted. Therefore this market offers opportunities to ramp up the growth trajectory of Nasdaq. As such, Nasdaq also intends to provide compelling products and services to Chi-X Canada.
Nasdaq has a good history of acquisitions. These efforts reflect the company’s aim of diversifying in the rapidly growing emerging markets, while enhancing its capital efficiency, cross-selling and product development opportunities in the long run. Going forward, management seeks further strategic alliances and acquisition opportunities to gain scale and adapt to the changing industry dynamics.
Last month, Intercontinental Exchange Inc. ICE agreed to acquire Trayport for $650 million. The acquisition will help ICE to enhance its services to the European over-the-counter energy markets, including European power, natural gas and coal.
Nasdaq presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the sector are Arbor Realty Trust Inc. ABR and Federal Agricultural Mortgage Corp AGM, both sporting a Zacks Rank #1 (Strong Buy).
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