In a direct challenge to NYSE Euronext and Deutsche Borse, CME, the world’s largest derivatives exchange, announced that it will set up a London-based exchange by the middle of 2013.
The London-based exchange will initially begin trading foreign exchange futures products and will be led by Robert Ray, who is currently managing director, products and services at CME. The new exchange will use CME Globex as the electronic trading platform while CME Clearing Europe Ltd will provide central counterparty clearing services.
CME’s announcement is a challenge to Europe's biggest derivatives trading exchanges, Liffe, which is operated by NYSE Euronext and Eurex, which is operated by Deutsche Borse, and together account for almost all trading in derivatives in Europe.
The move follows the decision by regulators earlier this year to block the planned merger of Deutsche Borse and NYSE Euronext, who intended to combine forces to precisely to prevent a major competitor such as CME from challenging their stronghold. After the deal was blocked, NYSE announced that it would expand its Liffe business.
U.S exchanges have been vying voraciously for a share of European markets on the heels of declining volumes in North American-based markets. By expanding in Europe, CME now hopes to lure new customers who prefer to trade under less prescriptive U.K. regulation, while also garnering new business from Asia, reports suggest.
CME Group’s U.S. rival, IntercontinentalExchange, recently also set up shop in Europe. Meanwhile, Nasdaq OMX announced in June plans to start a European derivatives trading business.
"We continue to see an increase in business coming from our diverse set of customers in Europe, with more than 20% of our volume now originating from the region," Terry Duffy, executive chairman and president at CME Group, said in a release. He added: "Having an exchange in London that can leverage the central counterparty model of CME Clearing Europe will allow us to align ourselves even more closely with our regional customers in both listed futures and over-the-counter markets, and provide additional opportunities to our expanding non-U.S. customer base."
Earlier this year, CME tried, and failed, to buy the London Metal Exchange.