You don’t realize just how complex the global trading network has become until you try to map it, as we’ve done in the chart “New world disorder." At first, we tried to include all commodities exchanges, a task that yielded an impenetrable mass of spaghetti. That’s when we decided to whittle it down to derivatives arrangements, and only include securities operations that either have their own derivatives exchanges or own stakes in them.
We took several shortcuts to keep this easy on the eyes. For example, we embedded clearinghouses in exchanges when the exchanges owned their own clearinghouse, unless that clearinghouse also clears for significant other entities (the determination of what constitutes “significant” being purely subjective and sure to elicit comment). We also streamlined some corporate structures. For example, Eurex owns a stake in EEX AG, which is the holding company that in turn shares ownership with Powernext of the EEX Derivatives Exchange. It’s an arrangement that exists only because of the ownership history of EEX and the challenge of efficiently completing cross-border deals, so we simply indicated shared ownership of EEX by Powernext and Eurex. Similar complex arrangements exist within the structure of several other exchanges, and we saw no value in illustrating them unless the separate entities had arrangements with other entities, or were differentiated still in the eyes of the trading public.
In the end, we often made the decision based on feedback from the exchanges themselves. In the case of CME Group, for example, we wrestled with how to illustrate the degree to which Nymex and its clearing operations are embedded in CME Group, as well as whether Globex should be treated as a separate entity, but decided to represent everything as a single entity because that is how the exchange sees itself. Euronext, on the other hand, has a more fragmented structure, based in part on national rules and regulations.
We also wrestled with the degree to which we should illustrate trading arrangements. The JSE, for example, has a license to list CME Group “mirror” contracts, while NCX has a license to list mirror contracts on products from a handful of other exchanges. We chose not to represent these arrangements, but did include the more formal arrangements that CME Group has with several Asian exchanges, as well as Eurex’s listing of Finnish options, because of slightly more complex clearing arrangements. We also chose to ignore technology arrangements, such as the provision of Liffe.Connect or the various services provided by OM Technologies to exchanges around the world. As for Memorandums of Understanding, we left these out because few have borne fruit, and that fruit already is illustrated. The Chinese exchanges are alone in this chart because none of the many agreements between them and Western exchanges have yielded anything concrete yet except for education efforts.
Regarding which owners we should include, there were also some foggy decisions to be made. We considered, for example, including large ownership stakes by major investment banks, but these proved so numerous as to not be illustrative of any particular strategy or structure, even though it’s clear to long-time observers that the large investment banks are backing ICE’s efforts to attract over-the-counter clearing. We had the same problem with government stakes and sovereign funds. In the end, we chose to ignore all owners except for other exchanges, with the exception of the Dubai government, which we included because of its numerous holdings that overflow into other markets as well as its active participation in the Dubai Financial Center.