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July 11, 2013 10:20 am
INTL FCStone, the US futures broker, has pulled out of a deal to buy a controlling stake in Cleartrade Exchange, the Asian commodity group, blaming uncertainty over changes to incoming US rules governing derivatives trading.
The New York group, one of the largest independent futures brokers in the US, had seen the purchase of Cleartrade as a stepping stone for a push into Asia. Cleartrade, regulated in Singapore, has focused on commodity derivatives such as freight, fuel oil and metals in the region since it was founded three years ago.
However, it said late on Wednesday that the deal, announced in May, had been scuppered by late changes to the final rules of the Dodd-Frank act, which will toughen regulation of overseas companies in the US.
“This change in strategy is due to the recent publication of further Dodd-Frank rules and the increased complexity and current uncertainty that we see these placing on a business of this type operating in the US,” said Scott Branch, president of INTL FCStone.
Under the terms of the deal, INTL FCStone would have acquired immediate voting control and the right to acquire up to 90 per cent of equity interest over the coming five years.
Richard Baker, chief executive of Cleartrade, said he was “disappointed with the outcome” but Cleartrade was aiming to remedy the problem by applying for a higher legal status in the US.
The recent changes in US regulatory requirements was “the only reason INTL FCStone concluded it could not invest in Cleartrade at this time”, he said.
Cleartrade, which had been searching for an investor for three months, said it would not look for a new investment in the short term. It will remain wholly owned by its original investor, John Banaszkiewicz, the managing director of iron ore interdealer broker Freight Investor Services.
Like other exchanges, Cleartrade wants to benefit from sweeping incoming global reform of derivatives markets. Regulation from G20 countries is set to push more over-the-counter derivatives trades on to electronic trading platforms, a move that may result in investors forsaking some off-exchange swaps for standardised exchange traded futures contracts.
INTL FCStone has expanded in Europe in recent years by acquiring the metals team of defunct broker MF Global and becoming a ring dealer on the London Metal Exchange.
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