has agreed to buy BIDS Trading, which runs an off-exchange “dark pool” for stock trades, the companies said Friday.
The deal, which is subject to regulatory review, comes as exchanges have grappled with an increase in private, off-exchange stock trades this year. More than 40% of total U.S. equities trading volume now takes place outside of public stock exchanges, according to
Dark pools are trading venues, often run by banks, which allow brokers and trading firms to buy and sell stocks without having to display their interest publicly, like on an exchange.
If the BIDS deal is completed, it could prop up Cboe’s share of U.S. equities trading, which has declined in recent years, while potentially opening some overseas growth opportunities for the Chicago-based exchange operator. Cboe and New York-based BIDS already have a partnership in Europe, where they run an electronic platform for executing large stock trades.
Terms of the agreement weren’t disclosed, but Cboe said the debt-funded acquisition wasn’t material from a financial perspective. BIDS brought in $42 million in net revenue during the 12 months through June, while Cboe reported net revenue of more than $1.1 billion last year.
The companies said they expected the deal to close in early 2021. Cboe’s stock held steady after the pact was announced Friday morning. Its shares gained less than 0.1%, while the S&P 500 was roughly flat.
If the sale closes, BIDS’s core business, its U.S. dark pool, would be managed independently from Cboe’s U.S. stock exchanges. BIDS Chief Executive Tim Mahoney is expected to continue leading the business as a separate unit within Cboe and report to an independent committee of Cboe’s board.
Such a governance structure may help the Securities and Exchange Commission look more favorably on the deal. While SEC approval isn’t formally required for the transaction, the agency oversees both exchanges and dark pools.
The SEC has historically been wary of exchanges acquiring stakes in registered broker-dealers because exchanges are meant to be neutral marketplaces where brokers come together to buy and sell stocks, without favoring any broker over another. BIDS, like other dark pools, is a registered broker-dealer.
An SEC spokeswoman declined to comment. Cboe has had discussions with the agency about the regulatory considerations of its owning a dark pool, a company spokeswoman said.
Dark pools have historically been more lightly regulated than exchanges, although the SEC has tightened the rules for them since it fined more than a half-dozen dark pools over various alleged regulatory violations during the past decade.
BIDS, founded in 2006, is owned by a consortium of banks and financial-services firms including
BIDS runs the ninth-largest U.S. dark pool in terms of trading volume, although it is the No. 1 dark pool in its specialty of executing large “block” trades of more than 10,000 shares, according to data from the Financial Industry Regulatory Authority.
News of the Cboe-BIDS deal comes a week after another, larger dark-pool operator, Liquidnet Holdings Inc., agreed to be acquired by U.K. brokerage firm
PLC for between $575 million and $700 million.
Write to Alexander Osipovich at [email protected]
Corrections & Amplifications
More than 40% of total U.S. equities trading volume now takes place outside of public stock exchanges, according to Cboe Global Markets. An earlier version of this article incorrectly put that figure at more than 60%. (Corrected on Oct. 16)
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Appeared in the October 17, 2020, print edition as ‘Cboe Set To Buy Dark Pool Operator.’