J.C. Flowers Buys Chi-X Trading Business in Australia, Japan

  • Head of Japan unit aiming for 5% to 10% market share
  • Chi-X Canada venue was sold to Nasdaq Inc. in December

Chi-X office in Sydney, Australia.

Photographer: Ian Waldie/Bloomberg

J.C. Flowers & Co. agreed to buy Chi-X Global Holdings LLC’s Australian and Japanese businesses, giving the New York-based private equity firm two exchanges that have battled for more than four years to grab market share from dominant bourse operators.

The acquisition, which also includes technology services unit Chi-Tech Hong Kong, is expected to close this quarter if regulators approve it, according to a statement, which didn’t say what J.C. Flowers will pay. Chi-X handles about 11 percent of on-market trades in Australia and less than 2 percent of equity transactions in Japan, according to data compiled by ASX Ltd. and Bloomberg. The venue has a bigger slice of Australian off-market trades, taking more than half of them last week. 

“It’s likely that Australia was attractive due to its solid earnings growth,” said Takashi Hiratsuka, in charge of Resona Bank Ltd.’s asset management division in the trading group. “Chi-X was able to earn more profit in Australia than Japan.”

The sale is the latest part of Chi-X to be portioned off by its backers. In early December Chi-X sold its Canada unit to U.S. exchange operator Nasdaq Inc. Another exchange company, Bats Global Markets Inc., bought Chi-X’s European division in 2011.

Nomura Holdings Inc. and its co-investors in Chi-X, including JPMorgan Chase & Co., Bank of America Corp., UBS Group AG, and Goldman Sachs Group Inc., have been examining plans to sell the business since last year. Chi-X, created by Nomura’s brokerage unit Instinet LLC, competes with ASX in Australia and Japan Exchange Group Inc. in Tokyo.

Growth Target

The venue started in Japan in 2010, before opening in Australia in September 2011. Makoto Nagahori, who runs Chi-X Japan, said Monday that he’ll stay on as head of the Tokyo-based operation under J.C. Flowers. It has been winning business from smaller local brokerages, he said.

“We don’t expect any major changes to the Japanese business with the upcoming change in shareholders," Nagahori said by phone. “We’d like to be looking at a 5 to 10 percent share of trading in the not too distant future."

J.C. Flowers, which focuses on the financial services industry, has invested more than $14 billion in 32 portfolio companies in 14 countries, according to its website. The firm was founded in 1998 by J. Christopher Flowers, 58, its chief executive officer and a former Goldman Sachs partner.

Asia Investments

Its investments in Asia include Japanese lender Shinsei Bank Ltd. The firm took over near-bankrupt Long-Term Credit Bank of Japan in 2000 with Ripplewood Holdings LLC founder Tim Collins and renamed it Shinsei before taking it public in February 2004 for a $7 billion gain.

South Korea’s Maeil Business newspaper reported this month that J.C. Flowers is teaming up with local buyout firm Vogo Investment to invest as much as 180 billion won ($150 million) in HK Savings Bank.

“The Chi-X businesses have established themselves as successful and innovative alternatives to primary exchanges,” Thierry Porte, managing director of J.C. Flowers, said in the statement announcing the deal. “We hope to accelerate this growth through continued enhancements to the platform.”

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