One of the top contenders for a leading marketplace in the APAC region, the ASX Group announced that it has made a binding offer to Australian interest rates securities and derivatives electronic marketplace, Yieldbroker. The proposal totals $65 million for a 49% non-controlling stake in the company, leaving Yieldbroker independently managed.
Boards of both companies support the proposed transaction and the only hurdle for the deal is for Yieldbroker’s shareholders to accept it as satisfactory, while the ASX conducts final due diligence, expected in the months ahead. ASX will use its existing cash resources to fund the acquisition and expects the move to be EPS neutral in the first full-year.
Yieldbroker at a Glance
The company started its operation in 1999 as the first electronic market for interest rate securities in Australia. As over-the-counter (OTC) interest rate markets began to benefit from electronic trading the company expanded its offerings to include a set of derivatives.
Recently, the company introduced swaps, overnight indexed swaps (OIS) and money market instruments. Over 100 financial institutions access markets on Yieldbroker, trading approximately $130 billion a month. The pricing mechanism sourced data from 18 banks, bringing transparency and more than sufficient liquidity to investors.
The company is also able to provide access to US investors to its market for interest rate swaps as it obtained a no-action relief from the U.S. Commodity Futures Trading Commission.
The Deal Explained by Management
ASX Managing Director and CEO, Elmer Funke Kupper, commented, “Yieldbroker is a leader in electronic trading in the Australian over-the-counter (OTC) debt and interest rate derivatives markets, and ASX’s proposed investment would complement our exchange-traded derivatives, OTC clearing and collateral management services.”
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He elaborated on the future of the companies together stating, “The ASX sees an opportunity for ASX and Yieldbroker to work together to deliver the next generation of Australia’s financial market trading infrastructure. ASX can also provide support for Yieldbroker’s growth ambitions in domestic and international markets.”
Commenting on the evolving market place, Mr. Kupper detailed, “Exchange-traded and OTC derivatives markets are experiencing considerable change globally. This proposed investment provides another way that ASX can improve liquidity and develop infrastructure to provide efficiencies to our customers, who access both OTC and exchange-traded products.”
He concluded in the company announcement, “In the 2014 financial year, notional turnover in the Australian dollar interest rate futures market was $42 trillion, ranking it the largest in Asia and among the top five globally. The investment in Yieldbroker is consistent with ASX’s long-term commitment to grow the A$ and NZ$ derivative markets.”
Yieldbroker’s CEO Richard Swift, stated, “ASX’s offer to become Yieldbroker’s 13th industry shareholder is a strong endorsement of the Yieldbroker business model, a model that is focused on close and continuous engagement with our customers and agile technological innovation and development.”
“Our skilled team of achievement-driven professionals has enabled Yieldbroker to become the gateway to Australia’s debt and interest rate OTC derivatives markets in just 15 years since the business was founded. We look forward to partnering with ASX to accelerate the company’s growth and to capitalise on opportunities for additional products,” he added.
Underlying the company’s independence, Mr Swift outlined, “Under the terms of the proposed investment, Yieldbroker will remain an independent business focused on providing transparent, liquid and competitive markets to banks, corporates and governments.”
Yieldbroker’s independent Chairman, Mr Richard Korhammer, concluded, “Markets infrastructure has evolved rapidly in recent years and Yieldbroker has been at the forefront of this innovation. This investment from ASX, along with the continued support of our existing bank shareholders, will help to ensure Yieldbroker remains agile enough to continually offer new and relevant products to our customers both locally and overseas.”
Other companies which are investors in the electronic marketplace include ANZ, CBA, Citi, Deutsche Bank, J.P. Morgan, Macquarie, NAB, RBC, RBS, Toronto Dominion, UBS and Westpac.