Deutsche Boerse looks outside euro zone as transaction tax looms

Mon Jun 30, 2014 1:40pm EDT

* Readying plans in case FTT hits derivatives - sources

* Clients could shift trading to Singapore, Zurich

* Deutsche Boerse says tax considerations play no role

FRANKFURT, June 30 (Reuters) - Deutsche Boerse plans to expand operations outside the euro area to give non-European clients an opportunity to avoid the bloc's proposed financial transaction tax, four people familiar with the exchange operator's thinking told Reuters.

"The group has to be ready to offer its clients something outside the euro zone if domestic trading is no longer attractive because of the financial transaction tax," one of the sources said.

Deutsche Boerse's new derivatives clearing house in Singapore, due to come on line in 2015, is expected to play a significant role in the plans, the sources said.

In addition, Eurex Zuerich, a unit of the derivatives trading arm Eurex, has applied for a trading licence from the U.S. derivatives regulator, the Commodity Futures Trading Commission (CFTC).

A Deutsche Boerse spokesman said Eurex was permanently looking at possibilities to expand its client base and its application to the CFTC was due to the implementation of the Dodd-Frank Act in the United States.

"Tax considerations play no role," the spokesman said, declining further comment.

Subdued trading activity on European markets has prompted Deutsche Boerse to pin its hopes for future growth on developing markets. Chief Executive Reto Francioni last year created a task force to seek out opportunities in Asia.

The financial transaction tax (FTT) is expected to create additional headwinds in Europe. Germany, France and other euro area countries plan to introduce the tax to make the financial sector pay back money received from taxpayers in the crisis and dampen speculative trading that may fuel future crises.

However, the scope of the tax is not yet clear. Lawmakers originally wanted to tax equity trades at a 0.1 percent rate and derivatives at 0.01 percent but some types of business may be excluded.

Deutsche Boerse has said so far its main expectation is for a tax focused on equities, which make up about 8 percent of its revenue and which would have a negligible impact on its business.

A tax on derivatives would be a different matter, as they make up nearly 40 percent of revenue at Deutsche Boerse.

"It's important to have back up solutions in place for the long term," said another source close to the company, adding it was not clear yet how much derivatives business customers would shift out of the euro zone.

"You can never be sure what the politicians in Berlin and Brussels might come up with," the person said. (Reporting by Andreas Kroener, Edward Taylor and Jonathan Gould in Frankfurt and Douwe Miedema in Washington; Editing by Mark Potter)