GFI Group, Inc.’s Merger with CME Group, Inc. May Prove Detrimental in the Long Run for GFI Group Stockholders

It was announced on July 30, 2014 that Chicago Mercantile Exchange Group, Inc. (“CME”), the world’s largest future exchange operator, would purchase GFI Group, Inc. for a net price of $655 million.[1] GFI Group was targeted for its two units that would boost CME’s influence in the global market, Trayport and FENICS.[2]

Trayport can be touted as a leader in the European market in providing brokers, exchanges, and traders with software to host power, gas, coal, emissions, and freight futures and forwards trading in Europe. In fact, they have connected the European energy trading community for over two decades and its technology connects over 85% of European wholesale power and gas transactions.[3]

FENICS provides, “price discovery, analytics, risk management and connectivity services for the global over-the-counter foreign exchange (FX) options markets,”[4] and has a very strong market presence in Asia. This unit was also the recipient of the “Best FX Derivatives Pricing and Risk” at the 2013 Asia Risk Awards.

It appears CME used their position as the current leader to merge with GFI strategically to acquire Trayport and FENICS. CME launched an (FX) futures and options in April 2014, and with GFI already covering the majority of the European and Asian market, it would have faced a steep uphill climb towards success if not with the merger with GFI.

Considering the July 31, 2014 second quarter results of GFI Group, there was a 17.4% increase in its software, analytics, and market data businesses of Trayport. Although non-GAAP brokerage declined 10.6% and net revenues declined 6.8%, one of the biggest successes of GFI was Trayport.[5]

Already as a leader in the European and Asian markets, with a stronger representation of the benefits of Trayport and FENICS, there is no saying the potential of growth CME could have in the U.S. market.

But for the planned merger, through Trayport and FENICS, GFI could prove to reap greater rewards in the long run. The growth and strength of the Asian economy should create the desire to maintain its position as a leader and to increase its profitability. The ability for FENICS to gain stronger ground with its already excellent reputation should not be lost on shareholders. It is no secret that there could be a conflict of interest between board of directors and shareholders within GFI. The shareholders would definitely be losing out by the decision to sell the two key GFI units at this point in time.

Those GFI shareholders who believe they were injured as a result of the merger may consider bringing a class action against the corporation.

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