Bats Global Markets Inc. is buying a currency-trading venue, making its first foray into the $5.3 trillion market and diversifying its sources of income.
The Lenexa, Kansas-based market operator has agreed to acquire Hotspot FX from KCG Holdings Inc. for $365 million in cash, according to statements from both companies. KCG had contacted potential buyers for the currency platform including Nasdaq OMX Group Inc. and Deutsche Boerse AG as part of the sale process, people familiar with the matter said in October.
“This is a great deal for our shareholders because while it was a very valuable asset, it was not a big enough asset to be reflected in our share price,” Daniel Coleman, KCG’s chief executive officer, said in an e-mail.
The acquisition, which is expected to complete by the end of the second quarter, is the first since Chris Concannon joined Bats from high-frequency trading company Virtu Financial Inc., a powerhouse in making markets across a range of assets, including currencies. The tie-up would create the biggest combined equity and currencies market operator, according to consultancy Aite Group LLC.
At Virtu, Concannon’s previous employer, earnings from foreign exchange surged 66 percent between 2011 and 2013, while the equities business grew 6.4 percent, the company said in a filing last March.
Hotspot had average daily volume of $27.7 billion in December, a 5 percent increase from a year earlier. The market’s volume that month compares with $105 billion on ICAP Plc’s EBS platform and $350 billion on the venues owned by Thomson Reuters Corp.
Bats’s acquisition has a network of more than 30 currency prime brokers that provide credit for trading, according to its website. Clients include banks, hedge funds, high-frequency trading firms and corporations. Knight Capital bought Hotspot in 2006 for $77.5 million, according to data compiled by Bloomberg.
Bats Global Markets bought stock market Chi-X Europe in 2011, and Bats Chi-X also has a stake in EuroCCP NV. The company paid a $14 million U.S. Securities and Exchange Commission penalty in January to settle allegations that Direct Edge markets didn’t accurately describe some of its order types. Bats bought Direct Edge a year ago.