Private-equity firm buys two Chicago options shops
Crain's Chicago Business
May 27, 2014
New York-based private-equity firm General Atlantic LLC plans to take control of two Chicago-based options trading shops, OptionsHouse LLC and TradeMonster Group Inc., by investing in each of them and then merging the companies.
General Atlantic said in a statement today it is buying OptionsHouse from its owner, Chicago-based Peak6 Investments LP, and separately buying a majority stake in TradeMonster. The combined company will keep its headquarters in Chicago.
Both Chicago companies cater to Main Street investors, whom the options industry and the Chicago Board Options Exchange have long wooed.
The buyouts, which are subject to regulatory approval, come after a string of options industry transactions over the past five years put larger Chicago-based options shops in the hands of big retail investment houses. That left smaller independent companies like OptionsHouse and TradeMonster competing against deep-pocketed companies like Charles Schwab Corp. and TD Ameritrade Holdings Corp. The larger players could afford to offer lower prices even as technology and regulatory costs are rising.
“The cost of business went up and it's a difficult landscape for everyone,” said Mark Longo, who leads Chicago-based online radio options broadcaster Options Insider Inc. “You need economies of scale in this business now to compete.”
The privately held companies declined to provide trading volume or customer account information about the Chicago options firms. That information would provide a sense of their size relative to the market and each other.
General Atlantic also owns a stake in Jersey City, New Jersey-based KCG Holdings Inc., the successor firm to Chicago-based Getco LLC, which bought Knight Capital Group Inc. in 2012. While TradeMonster and OptionsHouse handled retail investors, KCG, by way of Getco's legacy, is known as a high-frequency trader that seeks to profit from price differences in the market. Such market-makers often try to attract or buy the order flow of less sophisticated retail investors.
General Atlantic is seeking a new chief executive for the combined company, said Andrea Calise, a spokeswoman at the public relations firm representing the three companies. OptionsHouse CEO George Ruhana plans to stay with that company through completion of the transaction, expected by the third quarter, but then will return to Peak6, she said.
TradeMonster CEO Dirk Mueller-Ingrand will join the board of the combined company, she said. Most of the existing TradeMonster owners, including Knight Capital and Wolverine Holdings LP, will retain a stake in the combined company.