CME EYES LONDON FOR EUROPEAN BRIDGEHEAD
- By Jeremy Grant in London
CME Group is considering opening a futures exchange in London as a way for the US operator of the Chicago Mercantile Exchange to expand in Europe.
The development is a sign that if the Chicago company does not win the bidding for the London Metal Exchange, it could build a European futures exchange to complement its existing clearing business.
CME is one of a handful of global exchanges, including NYSE Euronext, that have submitted initial bids for the LME, with IntercontinentalExchange (ICE) also believed to have bid.
It underscores how London is emerging as the key battleground for derivatives trading and clearing as new regulations, such as the US Dodd-Frank Act and similar European legislation, force over-the-counter derivatives to be processed through clearing houses.
The London Stock Exchange last week said shareholders had approved its acquisition of a controlling stake in LCH.Clearnet, Europe's largest clearer by volume of OTC interest rate swaps.
NYSE Euronext, operator of London's Liffe futures exchange, said last month it would complete a fledgling derivatives clearing house in the capital that would handle OTC derivatives as well as Liffe's existing euribor interest rate futures contracts.
CME has operated a clearing house in London since last year, building on a sales office that was its beachhead in Europe when it opened in 2004.
William Knottenbelt, head of CME's operations in Europe, Africa and the Middle East, said that CME had OTC derivatives clearing in London, but because of the group's wide product range, "We would have to consider what we would do on the [exchange-traded] futures side, so we would need to have an exchange [in London]."
"It's something which we are considering, but the decision to actually do it has not been made," Mr Knottenbelt told the Financial Times.
CME's main US rival, ICE, has operated a London energy futures exchange since its purchase of the International Petroleum Exchange in 2001.
It also operates a clearing house in London for OTC credit default swaps.
LSE is expected to use its LCH.Clearnet acquisition as the launch pad for a push deeper into exchange-traded futures and to increase OTC interest rate swaps clearing, already handled by LCH's SwapClear service – which also competes with CME in swaps clearing in the US.
Deutsche Börse is also set to enter the fray with the launch of OTC interest rate swaps clearing at its Eurex Clearing subsidiary, based in Frankfurt, by the summer.
Mr Knottenbelt, global head of futures and global clearing at RBS until he was hired by CME last November, said CME would later this year launch clearing in London of OTC interest rate swaps.
He said even with SwapClear and the imminent entry of Eurex Clearing, there was room for a third competitor given that about 65 per cent of the global market for OTC interest rate swaps originated in London.
"We've talked to existing clients in Europe and have had a relatively good response. From a client perspective you want choice," he said.
