IG Group has announced the potential disposal of its interests in NADEX and Small Exchange as the company seeks to rationalise its US operations.
What businesses is IG selling?
IG Group is proposing to sell the North American Derivatives Exchange or NADEX alongside its stake in Small Exchange Inc in a deal, that if, approved should close in the first half of 2022.
What is NADEX?
NADEX is a US online derivatives exchange specialising in exotic options such as binaries and knockouts.
OTC derivative trading is not available to retail traders in the US and as such private clients do not have access to off-exchange CFDs and other leveraged products.
NADEX seeks to fill that gap with its short term leveraged contracts in Forex, equity indices and commodity markets.
Nadex acts as an exchange and matches buyers and sellers and does not take proprietary positions. The business is based in Chicago and regulated by the US CFTC.
What is The Small Exchange?
Small Exchange is a US futures market that is designed to make futures trading more accessible to US retail traders.
The exchange offers small futures contracts that are standardised, with, for example, common tick sizes and expiration dates.
These small contracts are available on markets such as a basket of 60 technology stocks, the US dollar, precious metals, treasury bonds, crude oil and other instruments.
Small Exchange is self-regulating with oversight from the CFTC and is also based in Chicago Illinois. Until now IG group has been a large but minority shareholder in Small Exchange Inc.
Why would IG sell NADEX and its Small Exchange stake?
IG is looking to rationalise its US operations following its $1.0 billion acquisition of options broker and educational platform TastyTrade, which is now the focus of its US operations.
NADEX has never really taken off in the way that IG would have liked and IG was a minority shareholder in Small Exchange, albeit a significant one.
Trying to grow both businesses in conjunction with TastyTrade is not a part of the IG Group business plan and it has chosen to divest these two businesses, to focus solely on TastyTrade in the USA.
Who has bought them and for how much?
IG is proposing to sell both Nadex and its stake in Small Exchange to Foris DAX Markets Inc, for a total consideration of $216.0 million.
Foris Dax is part of a larger group of businesses that operate under the umbrella of Crypto.com which was founded in 2016 and offers crypto trading and e-wallets, and has more recently moved into the world of digital collectables or NFTs.
What has the market said about IG Group’s disposals?
Stockbroker Shore Capital published a short note on the proposed deal this morning in which said that:
“We think the implied price for Nadex looks decent for a business that has never been a meaningful contributor to IG’s profits (circa 1.0%). We regard these disposals as a clear up of the US portfolio allowing IG to focus on its most meaningful US business being TastyTrade.”
The broker maintained its buy recommendation on IG Group and believes that the sale proceeds, of around £150.0 million, will bolster IG Group’s balance sheet and it expects the group to shortly outline its capital management priorities which could include a return of capital to shareholders.