Stalled Chinese-led purchase of the Chicago Stock Exchange
Did you know that a Chinese company owns Armour hot dogs? As China’s economy grows, investors there have climbed the food chain to acquire valuable American brands such as AMC Theatres, New York’s Waldorf Astoria hotel and Smithfield Foods, parent of Armour, which was founded in Chicago in 1867.
Currently on the shopping list for China is the Chicago Stock Exchange.
An investment group led by Chongqing Casin Enterprise Group struck a deal last year to buy CHX Holdings, the Chicago exchange’s parent, for $20 million.
The deal is trapped in U.S. regulatory limbo and needs to be approved.
There is nothing frightening about the prospect of a Chineseled group buying the Chicago Stock Exchange, despite the nervousness being expressed by some officials in Washington. Foreign investment contributes to the U.S. economy, just as it benefits the acquiring country. Foreign money is a vote of confidence. Often it means U.S. job creation: Global investors sink their money into American companies because they see growth potential. The purchase of the Chicago Stock Exchange, a tiny player in the U.S. financial markets, would help that Chicagobased business expand.
Certainly, deals involving China require special scrutiny because the communist government is a geopolitical competitor and, in some respects, an adversary of the United States. So after Chongqing Casin sealed its purchase agreement, regulators and other officials in Washington went to work. One powerful government entity, the Committee on Foreign Investment in the United States, which investigates deals on national security grounds, approved the Chinese-led acquisition of CHX last December.
In early August, the staff of the Securities and Exchange Commission, which is responsible for investor protection, also signed off on the purchase. That wasn’t the last word, however. In a rare move, SEC commissioners put final approval on hold, pending further review. The SEC gave no reason for that action, but some members of Congress are clear about their unease: They don’t trust the Chinese government. They suspect Beijing will find a way to use this deal to play games with the U.S. financial markets.
To cheat investors? Plot economic terrorism? Suspicions run deep.
“When you take into account the risk of cyber-market manipulation and the gamut of concerns we have with China . you certainly have to be wary of this acquisition,” Rep. Robert Pittenger, a North Carolina Republican, told The Wall Street Journal.
There are legitimate reasons to scrutinize foreign acquisitions. But remember, that’s why CFIUS vetted the deal. The committee, which includes representatives from the Treasury Department, Defense Department and other agencies, is no rubber-stamp operation.
It has blocked other transactions, but found no reason to prevent this one. Neither did the SEC staff investigation, which signaled that proper oversight will be in place to protect against trading mischief. We think that’s correct: Financial markets are heavily regulated. They also are self-policed by sophisticated investors who won’t tolerate weak controls.
If the Chicago Stock Exchange is vulnerable to manipulation, customers will go elsewhere.
So back to the point of this acquisition: to reinvigorate a storied Chicago institution. The 135-year-old exchange needs capital to grow. Chongqing Casin, which has interests in real estate and other businesses, would lead a group buying 49.5 percent of CHX. American investors would take the rest. CHX Chief Executive John Kerin told the SEC that none of the Chinese buyers are controlled by their government.
The new owners would invest up to $23 million in CHX. Their strategy calls for the Chicago Stock Exchange to focus on listing emerging growth companies from China and the U.S. That’s exciting because as China grows, more companies there will want to sell shares to American investors. With its Chinese connection, CHX will have the advantage. And when Chinese firms list on the Chicago Stock Exchange, they may set up offices here and hire Chicago professionals to help manage their businesses. Globalization in action.
More Chinese money is coming to the U.S. More can come to Chicago, as soon as the SEC approves the acquisition of the Chicago Stock Exchange.
Commissioners, sign off on this deal.