Exchange operator BATS Global Markets is in discussions to buy institutional foreign exchange trading platform Hotspot from KCG Holdings (NYSE: KCG) for nearly $400 million, three sources close to the situation said on Friday.
Jersey City, New Jersey-based KCG said in October it had begun to explore strategic options for Hotspot and that it would sell the unit if doing so would create the best value for its shareholders.
Hotspot has been performing well amidst the latest uptick in volumes among the entire trading industry. In the first half of December 2014, the ECN’s volumes were actually averaging better than the prior two months until the holiday rut cooled activity. Check out Hotspot’s latest volume chart below:
The talks between BATS, the No. 2 U.S. stock market operator by volume, and KCG, a financial services provider, are advanced, but a deal is not guaranteed, said one of the sources, all of whom declined to be named because the details are not public.
The $5 trillion-a-day foreign exchange market has been the focus of a probe by regulators in Britain following allegations that bank traders used advance knowledge of client orders to try to manipulate foreign exchange benchmarks.
The regulatory pressures could cause more banks to shift their big voice-based orders at the center of the currency market scandal to more transparent electronic systems. That in turn has made Hotspot, which has a client base of banks, professional trading firms and institutional investors, a desirable commodity.
BATS, which runs four U.S. stock exchanges, an options exchange and the biggest pan-European stock market, did not admit or deny any wrongdoing.
KCG, which trades equities, fixed income, currencies and commodities through both voice and automated execution, and includes an agency brokerage and off-exchange trading platforms, formed in July 2013 after trading firm Getco bought rival Knight Capital Group.
A spokesman for BATS and a spokeswoman for KCG declined to comment.