The Americans are coming — and derivatives trading in Europe may never be the same. In late August the largest U.S. futures exchange operator, Chicago-based CME Group, unveiled plans to launch a London-based derivatives exchange in the heart of the city’s financial district, known as the Square Mile. Although the new bourse, CME Europe, isn’t expected to go live until the summer of 2013 pending regulatory approval, the decision to challenge European incumbents — NYSE Euronext’s Liffe and Deutsche Börse’s Eurex — signals a new competitive salvo in the coming battle for market share in exchange-traded derivatives.
Over the past decade the listed derivatives market in Europe has remained remarkably concentrated even as it has grown dramatically. The trading volume of European equity index futures and options reached 1.4 billion contracts in 2010, with a notional value of $52 trillion, according to research by Hamburg-based Berenberg Bank. Both figures represent a five-fold increase from 2000. Trading in European interest rate derivatives tripled over the same period to 1.2 billion contracts, while the notional value of those contracts was six times larger at $730 trillion.
With coming regulatory changes in Europe destined to standardize derivatives trading and to open clearing to greater competition, would-be challengers like CME Europe and the London Stock Exchange Group’s Turquoise Derivatives are positioning themselves to make a run at Eurex and Liffe. They’re not alone. Nasdaq OMX has announced plans to launch a new London-based trading venue, NLX, in early 2013 to offer trading in listed short- and long-term interest rate derivatives. London-based interdealer broker ICAP has also indicated that it could move into listed derivatives trading with its recent strategic acquisition of the loss-making London-based operator Plus Stock Exchange. ....