CME may offer interest-rate products in London after currencies

August 26, 2012 02:40 PM
CME's European play

CME Group Inc., the owner of the world’s biggest futures exchange, may offer interest-rate trading in Europe, once the marketplace that it’s developing in London has established liquidity in currency contracts.

“We want to be a destination with a full suite of products over time,” Derek Sammann, CME’s senior managing director of foreign exchange and interest-rate products, said in an interview in London this week. The intention is for an “acquisition of net new client business” through the U.K. unit, broadening the “spread and distribution of the customer base,” he said.

The new London exchange will compete with Eurex and Liffe, the largest venues in Europe. NYSE Euronext’s London-based Liffe offers products including gilts, short-sterling and Euribor futures, while Frankfurt-based Eurex has contracts on German and French bonds. The two were blocked from merging by European Union antitrust regulators in February who said the combination would stifle competition in derivatives.

Exchanges and brokers including CME are trying to win business and customers by capitalizing on regulations that may push over-the-counter products onto electronic systems. The world’s biggest exchanges, including CME, Intercontinental Exchange Inc. and Deutsche Boerse, also own their own clearing houses, which operate central counterparties that stand in the middle of trades to guarantee they are completed.

‘Home Market’

“Clients say they need home-market regulation, they want clarity and consistency,” Sammann, who is based in Chicago, said two days ago. The new exchange, CME Europe, will “reflect local culture and have nuanced changes in product specifications and contract size.”

The London-based market will be led by Robert Ray as chief executive officer. CME Clearing Europe will process its transactions, and will start handling interest-rate swaps in the fourth quarter -- before they are traded on the exchange.

CME Europe will start by offering the 56 foreign-exchange pairs it trades in the U.S., Sammann said. The Chicago-based company wants to draw more turnover in regional currencies including the Polish zloty and Czech koruna through Europe, he said. The plan is to expand the range of products only after ensuring contracts in the first phase are successful, Sammann said, declining to define how that would be determined.

“We don’t want to be seen as throwing spaghetti against a wall,” he said. “We don’t want to say ‘boom here’s everything, take what you want.’”

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