Ever since the announcement that NYSE Euronext and Deustche Borse were in advanced merger talks people have been speculating on whether CME Group, the other 800-pound gorilla in the room, would attempt a counter offer for fear of becoming undersized relatively.

But the real competition has to do with the battle over margin efficiencies in the massive Treasury complex. CME Group and prior to the creation of if it (through the Chicago Mercantile Exchange’s acquisition of the Chicago Board of Trade) CBOT has battled to keep its supremacy in interest rate futures. The CBOT pushed aside most rivals with ease but when DB subsidiary Eurex made a serious challenge to list Treasuries while also negotiating with the Board of trade Clearing Corporation (BOTCC) to clear its soon to be listed U.S. Treasury futures contracts, the challenge became more viable.

The two Chicago futures giants answered by creating the Common Clearing Link, which delivered efficiencies to end users that they had been clamoring over for many years. They would later merge.

Contrary to popular opinion at the time, the CBOT had moved into the future and had a viable electronic market so they were not as vulnerable as some had suspected. By moving all CBOT positions to the CME clearinghouse they created additional efficiencies for end users.

NYSE Liffe U.S. offered a glimpse of the real competition it is embarked on with CME after the New York Portfolio Clearing was approved last week. NYSE Liffe U.S., like so many others before it, is attempting to take on the huge Chicago interest rate complex. Can they succeed? Many people like to say that it is impossible for one exchange to move a liquid viable contract from another exchange. That is not quite true. It happened with the bund and was about to happen with the Comex gold and silver contracts when the CME bailed out Comex and the New York Mercantile Exchange by forcing the CBOT to stand down (through its buyout offer along with existing non-competes with Nymex) right when the CBOT was close to gaining the upper hand.

The lesson is that in order gain traction when taking on an entrenched contract you need to offer an additional efficiency.

NYSE LIffe U.S. believes they have it with NYPC, a joint venture between the Depository Trust Clearing Corporation and NYSE Euronext, which will clear both cash Treasuries and futures in a ‘One Pot” clearinghouse. The CME already answered—a day earlier—with a new clearing entity they purport will offer the same efficiencies.

We will not handicap the battle at this point but it is clear that the creation of NYPC ups the ante a bit. Like other attempts to wrestle control of the Treasury complex many of the end users have a financial stake in the competing entity, but as history has proven this is insufficient in itself to create change. But given the expense of the operation it is clear this is not simply an attempt to put a check on CME Group for fear of its pricing power but a serious attempt to provide something new. It will be an interesting battle—NYSE Liffe will launch Eurodollars on March 21 and the entire Treasury suite a week later—and one more interesting than all this merge talk.