It was recently announced that the Chinese-owned Chongqing Casin Enterprise Group purchased1 the Chicago Stock Exchange (CHX), a more than century-old Chicago institution. Industry players point out the exchange is actually a small player in the highly competitive U.S. equities trading market.
However, they also note this step provides the Chinese with a solid position America’s stock market activity. A valuation of less than $100 million was placed on the transaction, which is expected to close before the end of 2016. The current owners include a number of well-known minority shareholders, such as E*Trade, Bank of America, JPMorgan Chase, and Goldman Sachs.
Questioning the Goals
While the Chicago Stock Exchange has been struggling for some time and handles just one-half percent of all U.S. trading activity, it provides ready access to all other equities exchanges in the country. In fact, Sayena Mostowfi, an officer of the TABB Group, notes “We have one of the most liquid and efficient stock markets in the world. People are looking at us as a model they want to be part of and invest in.”
The acquisition group anticipates using what it might gain from the purchase to help introduce Chinese stocks to the U.S. market as well as opening a new exchange in southwest China.
Others have brought up the issue of security and protection of customer records, particularly in light of previous allegations of Chinese hacking campaigns. Joe Saluzzi, author of “Broken Markets,” commented, “Does foreign ownership open up any potential for information leakage to someone who can take advantage of it? As an investor, I would raise an eyebrow.”
It is too early to anticipate what political opposition might arise over the sale, although there have been significant past challenges to such transactions. This includes a heated debate when Deutsche Boerse of Germany attempted to acquire NYSE in 2011.
Long-Term and Strategic Issues
Those who are against the purchase are already expressing concerns about how this seemingly isolated tactic might fit into a larger Chinese strategy. There is no question there is an aggressive effort by the Chinese to expand its overseas presence, with more than $123 billion in cross-border transactions in 2015 and another $70 billion already this year.
Along with joint efforts with Russia and India to establish a gold exchange, the Chinese have successfully established the yuan as a global reserve currency in place of the U.S. dollar. Analysts are quick to add to this and other developments the recent announcement from Iran that it wants to sell its oil in other than U.S. dollars.
These new and growing movements against the dollar underline the global focus on the growing role of the Chines yuan as a threat to the global positioning of the U.S. currency. Factors such as these, as well as declining oil prices, are causing new waves of concerns over the stability of U.S. banks and the global role of the dollar. Many people who buy gold are also watching this attack on the dollar closely as they anticipate hedging against its decline.
1 – http://money.cnn.com/2016/02/05/investing/china-buys-chicago-stock-exchange/index.html