Exchanges eye smaller takeovers to tap reforms

LONDON Tue Jun 26, 2012 1:32pm EDT

LONDON (Reuters) - The world's top futures exchanges plan to put their failed mega-mergers behind them with strategic deals to position themselves for reforms to force complex derivatives to start using their services.

The likes of CME Group (CME.O), Deutsche Boerse (DB1Gn.DE) and IntercontinentalExchange (ICE.N) are gearing up their European clearing units, but exchange chiefs told a conference on Tuesday that they will also look at deals.

"A wave of business is coming into exchanges and all of us are preparing for organic growth, though there are bits and pieces that you may want to acquire to nudge that along," Jeffrey Sprecher, the chief executive of ICE, said on Tuesday.

Similarly, Andreas Preuss, head of Deutsche Boerse's futures market, told the International Derivatives Expo in London: "Our strategic plans evolve around intelligent organic growth ... and intelligent acquisitions."

Exchange-owned clearing houses sit between trading partners, stepping in to reimburse any firm left out of pocket by the default of a trading partner.

Clearing is mandatory for firms trading exchange-listed products such as shares and futures, but it is optional when trading off-exchange instruments such as swaps, which allow traders to hedge their bets.

Politicians and regulators have been keen to overhaul the financial markets to tackle many of the problems exposed by the collapse of Lehman Brothers in 2008.

To this end, European policymakers want to pass rules next year to force banks trading in the $700 trillion over-the-counter derivatives market to use exchange-owned clearing houses.

The exchange bosses hope that these plans will give their businesses a much-needed boost at a time when trading activity - their main source of revenue - remains weak amid lingering concerns over the financial crisis.

The CME and Deutsche Boerse, for example, have said they will start clearing interest-rate swaps in the next six months; a move that pitches them into direct competition with LCH.Clearnet, the incumbent supplier.

A series of smaller, strategic deals around swap clearing would mark a new phase in exchange mergers and acquisitions after a spate of failed mega-mergers between some of the largest exchange groups.

Deutshe Boerse and the New York Stock Exchange's proposal to create the world's largest exchange operator with a $7.4 billion merger was rejected by European anti-trust authorities in February.

ICE was forced to drop its $11.3 billion joint bid with Nasdaq OMX (NDAQ.O) to buy NYSE Euronext NYX.N after competition authorities in the United States blocked the deal in May last year.

(Editing by David Goodman)

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