Deutsche Boerse CEO Reto Francioni said there is little overlap in trading conducted on its Eurex derivatives exchange with that conducted on NYSE Euronext’s Liffe exchange.
And that combining the two exchanges through the merger of Deutsche Boerse and NYSE Euronext would only begin to resemble the sort of vertically integrated derivatives marketplace as already exists at Chicago-based CME Group.
“The future belongs to integrated exchanges because they offer market participants a single port of call for secure and reliable transaction processing,’’ he said in a speech delivered to capital markets professionals and regulators at Euro Finance Week in Frankfurt.
NYSE Euronext and Deutsche Boerse last week began working on concessions to present to European regulators, after talks with the European Union’s competition commission. A core concern appears to be the firms’ combined control of more than 90% of Europe’s exchange-traded derivatives market.
The European Union has set a Nov. 17 deadline for proposing remedies.
But Francioni said the derivatives marketplace is global, not European, that the biggest competitor to Eurex and Liffe is the over-the-counter market, and that Liffe and Eurex “operate on opposite ends of the interest curve.’’
That means, he said, “there is no competition between the two exchanges for the majority of the exchange-listed derivatives business.’’
The instruments traded on the two exchanges are “complementary rather than substituting for each other.” Many derivatives traders are members of both Eurex and Liffe, “something that would not be necessary if the products traded were largely interchangeable,’’ he said.
Volume-wise, “competition in the derivatives business is not between the individual exchanges, but chiefly between exchanges and the OTC market,’’ he said.
Around 85% of derivatives trading worldwide is conducted over the counter, Francioni estimated.
And, finally, he said, the relevant market for trading derivatives is global, not European.
“Technological advances allow traders to operate simultaneously on all derivatives exchanges around the globe regardless of their location,’’ he said. “The largest traders are members of most of the world’s derivatives exchanges and can therefore trade anywhere almost around the clock.”
The combination of Liffe and Eurex will “face tough competition worldwide,’’ from CME Group, Intercontinental Exchange and other players, he said.
He noted that a “key strength” of CME Group is “ its integrated palette of leading derivatives across the entire yield curve.”
And he noted that the CME Group itself was the result of the regulator-approved merger of the two largest futures and options exchanges in the United States.
CME Group is the result of the 2007 merger of the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (CBOT).
“The envisioned merger between Deutsche Börse and NYSE, and therefore between Frankfurt’s Eurex and London’s Liffe, would create a worthy opponent in global competition—for Frankfurt, for London and, by extension, for Europe,’’ he said.
-- This article first appeared on Securities Technology Monitor.
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