What it means
ICAP had long been known as an interdealer broker, a firm that helps banks trade bonds, currencies and derivatives with each other, partly by telephone. When it sold its voice broking business to a rival in the mid-2010s, the remaining electronic and post-trade operations were renamed NEX.
The change reflected a move from people on phones to technology platforms. The group was made up of several parts.
These included platforms for trading government bonds and foreign exchange, services that confirm and process trades after they are made, and tools that help firms cut the number of outstanding trades and reduce risk. Customers were mainly banks, asset managers and trading firms.
For a business reader, NEX is a good example of how financial markets have moved towards electronic infrastructure. Platforms of this kind earn income from trading volumes, subscription fees and data, and they tend to benefit from scale because each additional trade costs little to process.
Competition from other exchanges and technology firms is strong, which drives consolidation. The best-known event in its history is the takeover by CME Group, one of the world's largest derivatives exchange operators.
The deal combined NEX's bond and currency trading platforms with CME's futures business, giving customers a wider choice from a single provider. It is typical of the way exchanges expand by buying complementary technology and customer relationships.
The letters NEX have also appeared in other financial brand names, including a stock market for smaller companies that was part of the same group and later changed hands. Since uses of the acronym can differ, check the context when you see it.
In most business discussions, NEX refers to the former ICAP electronic businesses. In practice, deals of this kind raise questions about competition and about what happens to customers and staff.
Regulators review whether the combined firm would have too much power in a market, and the buyer usually promises savings from combining technology and offices. Investors judge the price paid against the value of the earnings and the synergies, meaning the extra value created by joining two businesses.
In practice
Real-world examples.
Example
A bank trading desk uses an electronic platform from the group to buy and sell government bonds with other banks. A trade of $50,000,000 is matched in seconds, and the platform charges a small fee per million traded. The desk prefers it to phoning a broker. A record of the trade is also created automatically for compliance.
Example
A corporate treasurer at an exporter uses a foreign exchange platform to buy $10,000,000 of currency for a payment due to suppliers. The platform shows prices from several banks at once. The treasurer chooses the best quote and confirms the deal immediately. The confirmation then flows to the company's accounting system for the payment date.
Example
An investment analyst compares the takeover of NEX with other exchange mergers. She notes that the buyer paid a premium to the previous share price to gain control of the technology and customer base. Her report discusses whether the combined company can cut costs by merging operations.
Case study
Seen in the real world.
Ridgeway Markets is a fictional trading technology firm created for this illustrative story and is not NEX itself. It started as a phone-based broker and sold its voice business to focus on electronic platforms. Revenue fell by 40% in the year of the sale, and shareholders worried about the future.
Over the next three years, the new platforms grew volumes by 15% a year and profit margins improved because each extra trade cost very little to handle. A larger exchange operator then offered to buy the company at a premium. The story shows why electronic trading businesses are attractive to acquirers, though the founders noted the transition was risky and needed heavy investment.
Ridgeway's finance team noted that after the offer, the share price jumped by about 35% in a single day. They treated the premium as a one-off event and kept the focus on growing volumes and controlling costs.
Watch out
Common mistakes.
- Confusing NEX with a single product. It was a group with several businesses in trading and post-trade services.
- Assuming it still trades as an independent company. After the takeover by CME Group, its operations became part of the larger group.
- Mixing it up with other uses of the same letters. Always check whether a document is referring to the group or to another entity.
Questions
People also ask.
What did NEX do?
It provided electronic trading platforms and post-trade services for markets such as bonds and foreign exchange, used mainly by banks, asset managers and trading firms rather than by individual investors.
How is it related to ICAP?
It was formed from ICAP's electronic businesses after the voice broking arm was sold.
Who bought NEX?
CME Group acquired it, bringing its platforms into a larger exchange and clearing business.
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