OPINION: Is CSX the Next Amex Options?

Terry Flanagan

The Chicago Stock Exchange could afford to roll the dice.

The exchange operator captured 0.47% share of U.S. equity trading last month, according to industry data disseminated by Bats Global Markets. That number was up from 0.4% in the year-earlier period.

But you can’t interpret the numbers as a growth story of an emerging exchange expanding its market share by 18%. That’s because CSX was founded in 1882, when Chester A. Arthur was U.S. President.

No, CSX is an afterthought among U.S. equity traders these days, as for every share that trades under its roof, about 48 shares transact on the New York Stock Exchange and 32 shares change ownership at Nasdaq.

So when an obscure (at least on U.S. shores) Chinese investment firm called Chongqing Casin Enterprise Group came calling, it’s reasonable to infer CSX officials were all ears.

What is the future of CSX? That’s quite a mystery, but it’s safe to say there’s more upside to the organization than there was 24 hours ago, before the deal was announced. If Las Vegas set futures lines for exchange market share, I suspect CSX’s over/under for 2020 would have increased from 1.5% or thereabouts, to perhaps 3.5%.

In a statement, Casin Group Founder and Chairman Shengju Lu said: “We have reviewed CHX’s plans to improve market share through new growth initiatives and fully support them. Together, we have a unique opportunity to help develop financial markets in China over the longer term and to bring exciting Chinese growth companies to U.S. investors.”

That sounds quite bullish and expansionary. But as Jerry Maguire said, show me the money!

Does Casin have capital to throw around? How has the firm, whose businesses are in financial services, real estate and environmental services, been affected by the rapid slowing of Chinese economic growth, and the cratering of Chinese equities? More importantly, how willing and able will the firm be to invest going forward?

If Casin does prove to be a deep-pocketed backer for CHX, there is at least one fairly recent precedent in the exchange space that shows what capital infusion can do for business: the American Stock Exchange.

Amex was languishing before being bought by NYSE Euronext in 2008. Among other investments, the new owners overhauled the technology and put in a new trading room, and at least on the options side, market share increased from the low single digits to the low teens within five years. NYSE Amex was the fastest-growing U.S. options exchange in 2011 and 2012.

Of course the Amex options exchange of eight years ago isn’t an apples-to-apples comparison with the CHX stock market of today, but the Amex experience shows that capital investment does matter.

Throw in likely linkages with Chinese financial markets, and CHX may be the next growth story in the U.S. exchange space.    

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