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The time has come for federal regulators to approve a small but highly controversial local business deal — the purchase of the Chicago Stock Exchange by Chinese-led investors.
By early August, the Securities and Exchange Commission is expected to rule on the proposed transaction, valued by financial sources at around $30 million. In February 2016, Chinese conglomerate Chongqing Casin Enterprise Group announced its intent to buy the exchange, pending regulatory authorization.
The SEC is under heavy congressional pressure to kill this deal. Some federal lawmakers fear the Chinese government is behind the buyout curtain and could use the exchange to launch cyberattacks or game the U.S. financial markets.
Here’s hoping the SEC doesn’t cave to such oversized political anxieties and sanctions this pact.
If given the go-ahead, this deal promises to be a plus for the local economy and a needed lift for the Chicago Stock Exchange, which has long toiled in relative obscurity at home and within the global financial community.
Let’s begin with the realization that Chinese-backed investors have been investing in the U.S. for some time with few adverse reactions.
Nationally, Chinese interests have plowed about $135 billion into a variety of companies and business sectors during the last 17 years, according to New York-based Rhodium Group, which tracks China-led investments.
In Illinois, an estimated $10 billion in 71 deals has been invested, with much of that cash backing real estate developments or purchases of Chicago-area office and high-end residential real estate, the group says.
Compared with these lofty sums, the estimated $30 million for the 135-year-old Chicago Stock Exchange is a pittance.
(The Chicago Stock Exchange and its suitor, which goes by the name Casin Group, declined to discuss the purchase price of this private-party transaction. The Chicago exchange is owned by a consortium of JPMorgan Chase, Bank of America, ETrade, Goldman Sachs and private investors.)
In a recent blog posting, Casin Group said it envisions the Chicago Stock Exchange attracting a growing niche of Chinese-based and other foreign companies that are eager for a U.S. equity exchange listing.
Many of those firms would be midsized or smaller enterprises that aren’t large enough to trade on global venues, like the New York Stock Exchange. Those newcomers would help to boost trading revenue at the Chicago Stock Exchange, which has a miniscule 0.5 percent of the $22 trillion in equity trading that goes on in the U.S. each year.
This rush of new business isn’t going to happen overnight.
Casin Group will have to make multimillion-dollar upgrades in technology and other systems — an investment that will help produce more jobs at the exchange, which now employs about 75 people, and create other outside support positions within the region.
What’s more, those expanding overseas companies tapping the revitalized Chicago exchange are eventually going to need accountants, investment bankers, lawyers and other players here, which could prove to be a lucrative opportunity for Chicago’s professional service sector crowd.
Lawmakers opposing this deal have predictable concerns.
In a letter to the SEC, Democratic Sen. Joe Manchin of West Virginia said he’s “unconvinced” that those financially backing this deal are not being influenced or controlled by the Chinese government.
Eleven other U.S. legislators also oppose the deal for the same reasons. They question the SEC’s ability to monitor the Casin Group.
Few would be so naive as to summarily dismiss concerns about the motivations of any foreign company trying to acquire a U.S.-based stock market exchange.
It is a situation that demands investigation, which is exactly what’s gone on since the Chicago Stock Exchange deal was announced 17 months ago.
In fact, the proposal got a thumbs-up in February from the Committee on Foreign Investment in the United States, a unit of the U.S. Treasury that can block foreign transactions on national security grounds and has done so with other Chinese-financed acquisitions.
Sure it’s possible the Casin Group, or any group of investors, could pull a fast one beneath our noses.
Still, it would be a big mistake to slam the door on the Chicago Stock Exchange transaction because of unspecified and broad-based suspicions about Chinese government influence or venality.
This is a deal that’s worth approving.