The London Stock Exchange Group (LSEG) has reached an agreement with Citigroup (Citi) to acquire The Yield Book and Citi Fixed Income Indices, a fixed income analytics platform and index business comprising a family of fixed income indices for a total cash consideration of US$685mn (£535m), subject to customary adjustments. The transaction is anticipated to close in the second half of 2017 subject to regulatory clearance and 'other customary closing conditions'.

Citi's Yield Book which has been headed by former global head of retail structured products and hybrid products at Citi in London, Richard Burns (pictured), since the end of 2011, offers a platform for portfolio and risk management, performance measurement and market-making including analysis of complex security types (MBS, CMO, ABS, CMBS) and derivatives (swaps, swaptions, caps, floors, structured notes and exotics), advanced portfolio functions (scenario analysis, tracking error and VaR), optimization, exchange-traded funds (ETF) and indexes (constituent level data for Citigroup, iBoxx, Barclays indexes can be used for reporting against portfolios or further customized as benchmarks).

A Citi spokesperson told SRP the bank's index business will continue to run "as usual until closing" when the "licensing will call under LSEG" while the bank's structured products issuance will not be impacted.

'This partnership will help accelerate the growth of our business,' said Burns. "As part of London Stock Exchange Group, our clients will benefit from continued investment and strengthening of our analytics platform, together with a broader range of indexing capabilities.'

The acquisition adds a number of traditional market value-weighted benchmarks to alternatively-weighted strategy indices to FTSE Russell's existing portfolio of indexes, broadening its multi-asset offering. The indices will continue to be maintained based on existing design criteria and calculation methodologies, and will continue to align with regulatory requirements such as the Iosco principles.

FTSE Russell is an active provider of indexes to the global structured products market. SRP data shows that more than 35,000 products feature FTSE indexes of which 11,855 are still live products mostly in Germany/Austria (6,000), the UK, South Africa, the US, and South Korea. There are also over 11,000 structured products featuring Russell indexes of which more than 6,000 are still live mainly in the US market (6,073 products) and Canada (69 products).

Under the terms of the acquisition FTSE Russell will take over the management of a number of Citi indexes used as underlyings in the global structured products market which represent an estimated US$720m of assets under management (AUM).

There are over 52 structured products featuring Citi fixed income indexes including the Citigroup World Government Bond Index (which is among the 'most closely followed globally' and has been featured on 29 products), Citigroup Eurobig 3-5 (eight products), Citigroup EMU Government Bond Index (four products), as well as the Citi UK Bond Index, Citi US Bond Index, Citi German Bond Index, and Citi Multi Risk Premia Equity index.

The acquisition of The Yield Book and Citi Fixed Income Indices is aimed at supporting the growth and development of LSEG's Information Services division, according to Mark Makepeace, group director of information services and chief executive of FTSE Russell. 'The acquisition represents a significant step for FTSE Russell to acquire a world-class fixed income analytics and index business, enhancing our ability to provide customers with broader multi-asset capabilities and a deeper data and analytics offering,' said Makepeace.

The Yield Book's serves approximately 350 institutions globally including investment management firms, banks, central banks, insurance companies, pension funds, broker-dealers, hedge funds and investment management firms. Citi's Fixed Income Indices have approximately 300 clients globally, including 200 buy-side fixed income asset managers and asset owners.

LSEG and Citi will enter into a long-term partnership, by which each is committed to collaborating on future development and support of these models and associated products. Citi will remain a significant customer of The Yield Book and a long term partner.

LSEG expects to achieve revenue synergies of US$30m over the first three years post completion through investment in new product opportunities and increased index adoption. Additionally, LSEG expects to achieve cost synergies of US$18m over the same period through operational efficiencies to align FTSE Russell product strategy with The Yield Book, with further potential upside in the subsequent two years.

The agreement comes on the back of the failed LSEG and Deutsche Borse merger which would have given the UK exchange control of nearly $20bn of benchmark linked AUM.

"This transaction is a positive outcome for The Yield Book and Citi Fixed Income Indices for both clients and employees," said Okan Pekin, global head of Investor Services. "As a result, these businesses will become part of a global financial market infrastructure group with a demonstrated track record of delivering high-quality index and analytics services to its clients. We look forward to a long-term, productive partnership between London Stock Exchange Group and Citi. This divestiture is consistent with Citi's strategy of focusing on its core businesses."

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