CME Group's European exchange, set to begin trading foreign exchange futures next year, will offer a competitive alternative to other exchanges, says the group's head of forex and rates
CME Group’s European exchange, set to begin trading foreign exchange futures next year, will offer a competitive alternative to other exchanges, says the group’s head of forex and rates
Chicago-based derivatives exchange CME Group last week began the process of expanding its presence in Europe with the announcement it is applying to the UK Financial Services Authority (FSA) to create a London-based derivatives exchange, which will start trading forex futures in mid-2013.
The venture will compete against a variety of established European exchanges, including NYSE Euronext’s Liffe and Frankfurt-headquartered Eurex, but Derek Sammann, senior managing director of foreign exchange and interest rate products at CME Group in Chicago, insists the firm is ready for the challenge.
“We have a leadership position for our forex futures business of about $120 billion a day, and only 30% of that business is transacted with clients outside of the US. We’re aware of customers that want to trade with CME from Asia and Europe, and it’s difficult to convince them to come into a US jurisdiction,” says Sammann.
Robert Ray will become chief executive of CME Europe, moving from his current position as managing director for products and services. CME Globex will provide the electronic trading platform for the new exchange, while CME Clearing Europe will provide clearing services.
Feedback from market participants was generally positive, but some suggested CME Group may struggle to win market share from the established players.
“On the positive side, CME is well recognised and its technology is considered pretty robust,” says Marc Quinn, senior associate director at Berkeley Futures in London. “The challenges it faces will be trying to take market share away from existing exchanges, as most futures contracts launched by an exchange tend to fail. Forex futures will be attractive because, by trading on-exchange, you get better price transparency, better mitigated risk and the regulation of the exchange.”
CME launched an over-the-counter clearing business for foreign exchange in May 2011. Having failed to clear a single foreign exchange trade for almost a year, the firm has cleared a handful of client trades in non-deliverable forwards in recent months. Nevertheless, Sammann believes the exchange’s solid reputation in the US market will drive the success of its European business.
“Our exchange in the US is the largest regulated market-place in the world and we’re the second largest over-the-counter venue. We think there is an opportunity to attract clients to a centrally cleared model due to the US Dodd-Frank Act and the European Market Infrastructure Regulation. Customers are telling us they would like to see venues made available to them where they can trade in the most capital-efficient way. For clients that want to be in an FSA jurisdiction, it gives them an opportunity to be in that market as well,” says Sammann.
This article was first published on Risk