April 29, 2014 / 6:12 PM / 4 years ago

Derivatives trading in Europe remains two-horse race

LONDON (Reuters) - Deutsche Boerse’s Eurex (DB1Gn.DE) and U.S. rival IntercontinentalExchange (ICE.N) will withstand challenges from rival bourses and be the dominant forces in on-exchange derivatives trading in Europe, a Eurex official said on Tuesday.

Global regulators decided after the financial crisis that derivatives such as interest rate swaps and credit default swaps, previously bought and sold through dealers, should be traded on electronic platforms, centrally cleared and recorded, in the interest of improved clarity and lower risk.

A number of exchanges, including ICE, CME Group (CME.O) and Nasdaq OMX (NDAQ.O), have been seeking to cash in on the rule change by acquiring or launching venues.

ICE obtained Liffe, Europe’s second-largest derivatives market after Deutsche Boerse’s Eurex, when it bought NYSE Euronext in a $10 billion-plus deal last year. Nasdaq launched NLX, a London-based derivatives market last May. Trading on CME Group’s new European exchange, which offers commodities and foreign exchange futures, began earlier this week.

Speaking at the Reuters Financial Regulation Summit in London, Brendan Bradley, Eurex’s chief innovation officer, said derivatives remains a difficult market to crack.

Volumes on Eurex have been little changed by the arrival of NLX, he said, and there is no reason that Eurex cannot grab the share of business that CME, which dominates electronic trading of FX in the United States, is targeting with its new European venue.

Eurex is planning to launch FX derivatives soon, according to its website.

“CME should do well in FX... but if the reason CME set up in Europe was because a sufficient number of European-based institutions don’t want to be putting their business into the U.S. because of (financial market regulations there) and putting monies into U.S. based clearing house, then effectively we should have as good an opportunity as CME in Europe to gain that business.”

    Eurex doesn’t expect to lose ground to ICE, Bradley said, because market participants have traditionally wanted the option of more than one major player to prevent monopolistic pricing. Also, the Atlanta-based exchange is still working through “issues in terms of integrating the NYSE universe”.

    But Bradley said he recognized that the NYSE acquisition gave ICE a strong set of products and did not underestimate its rival.

    “Having the Euribor (derivatives contracts) franchise and given their track record so far, ICE is somebody you have to take seriously,” he said.

    Follow Reuters Summits on Twitter @Reuters_Summits

    Reporting by Clare Hutchison and Huw Jones; Editing by Mark Heinrich

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