CME Group Inc. (CME), owner of the worldâs biggest futures exchange, plans a derivatives market in London by the middle of 2013, setting up in competition with Eurex and Liffe, the largest venues. The exchange will start with currency futures, the exchange said in a statement today. CMEâs European exchange will be led by Robert Ray, as chief executive officer. CME Globex will be the electronic trading system for the new London exchange and CME Clearing Europe will process the transactions. Chicago-based CME plans to file with the U.K. securities regulator in the coming weeks as the first step in the process. Enlarge image People walk past CME Group Inc.'s headquarters in Chicago. Photographer: Tim Boyle/Bloomberg Ten years after going public, CME Group has become the most valuable exchange operator in the world, capitalizing on the higher profitability of derivatives while the value of equity trading has declined. The company controls 98 percent of the U.S. futures market and gets about 20 percent of its business outside U.S. trading hours. It opened a London-based clearinghouse, CME Clearing Europe, last year. The new exchange represents competition for Liffe and Eurex, whose owners, NYSE Euronext (NYX) and Deutsche Boerse AG (DB1), had their plan to merge blocked by European antitrust authorities in February. Merger Delay CME has been working on the project for about two years. It was delayed while NYSE Euronext and Deutsche Boerse held merger talks, according to people familiar with the situation who also revealed plans for the new exchange. Regulators scrutinizing the NYSE-Deutsche Boerse deal were focused on whether sufficient competition in derivatives existed in Europe and whether CME might become âa significant playerâ there. CME was also sidetracked by the bidding war for the London Metal Exchange because acquiring the venue would have given it a European exchange to build on, the people said. As CME was unsuccessful in its LME bid, it decided to forge ahead with the project, the people said. Allan Schoenberg, a spokesman for CME in London, declined to comment. Eurex is Europeâs largest derivatives exchange and London- based Liffe is second. Intercontinental Exchange Inc., the second-largest U.S. futures market, owns ICE Futures Europe exchange in London. Trading at ICE Futures Europe exchange set a second-quarter record. European Future In January, a senior CME executive said the exchangeâs future is in Europe. âLondon is a major office, the future is in Europe,â Felix Carabello, CME Groupâs managing director of International Strategic Sales, said in a January interview on the exchangeâs plans for the region. âWe want to be part of the community, itâs not an outpost.â He wasnât more specific. During the year it spent fighting for its deal, NYSE argued that its greatest competitor in derivatives is CME, not Deutsche Boerse. It cited an 89 percent membership overlap between CME and Liffe and rivalry in trading Euribor and Eurodollar futures. CME last year offered Euribor futures and options on its electronic trading platform, pitting itself directly against Liffe, which dominates the market for co-called short-term interest rate products. âWould we invest in a new exchange based in Europe?â Andrew Lamb, chief executive officer of CME Clearing Europe, said in a January interview. âYes, but based on tangible client demand.â http://www.bloomberg.com/news/2012-...ope-exchange-to-compete-with-eurex-liffe.html With volumes dropping so fast yr/yr why not open another exchange to spread out what's left. Guess they'll be in place to pick up the scraps after the transaction tax demolition of Europe's exchanges.
I'm not a fan of either Eurex or LIFFE, but can't see any way in which CME can offer a better product that people will want to trade. (Apart from curbing algos which they will never do) If anything I would judge them to be further behind the curve when it comes to experience in electronic trading. I've wondered for a long while how the exchanges are making money with the drop in volumes. The decline in fixed income was offset by stock volume for a few years but now that is going south too. Eurex volume is dire. CME is only slightly better but I would imagine that they have much greater overheads. I wonder what the break even volume is on the exchanges? So many exchanges have opened over the years and virtually all of them have failed. I can't even remember the name of the CBOT competitor that tried a few backs with really cheap fees and still failed. I really can't imagine the CME being successful in Europe. It's sounds like a dumb idea which is exactly what I would expect from the management and it smacks of desperation.
There is "tangible client demand" for yet another FX trading venue? In London, above all places? If it were possible to fail harder than Eurex-US, i think these guys could do it.
They say they want to list FX futures in London... wtf that's the stupidest thing i've heard, or maybe i'm missing something?... With the spot fx market so liquid and so electronic, who is going to want to trade the futures? Small time punter, probably a handful of algos to arb it, but there's no paper to make it their bread and butter. Besides, what will be different from their current globex offering.
"The CME currently handles around $120bn worth of currency contracts a day, offering 56 FX futures and 32 FX options products in the U.S. The new exchange in London will replicate its futures products in Europe but the company said it is planning to develop smaller, regional products in the future. The global foreign exchange market as a whole generates an average daily turnover of around $4 trillion. The CME will now become the first company to offer exchange-traded currency derivatives products in London. " Also, iirc didn't liffe start with a cable contract alongside its STIRs?
My guess is that the CME will offer some cross-margining advantages as well as some exchange supported intermarket spread product offerings since there is so much overlap between international product users ( Eurex rates and CBOT; Euribor and Eurodollars ). Their costs are already largely fixed, so poaching volume would seem a logical progression. The ongoing problem for Eurex primarily is that they have really alienated the independent traders and the London prop traders. It's hard to win back what you have essentially spent about a dozen years systematically destroying. I'm sure that the big German Banks that originally started up Deutsche Borse won't give a shit at this point in time - hell, the potential cross-margining advantages will probably save them cash flow come to think of it.
But why FX futures? And compete against themselfs(IMM/Globex) ? The only reason i can think of that this gains any traction is maybe some european participants that have to use domestic exchanges for some obscure regulatory reasons..
good point bone. I wonder what's the marginal cost of listing an extra electronic contract? Must be next to nothing, that's why so many of these exchanges have totally redundant products that don't trade at all. rates / Fixed income would be the obvious choice esp after nyse liffe tried listing eurodollars. Or even go after ICE's brent contract, they couldn't do much worse than nymex europe.