Eurex preparing to shake up U.S. futures industry
Reuters, 04.21.03, 4:16 PM ET
By Rosalind Krasny
CHICAGO, April 21 (Reuters) - The expected arrival in the United States early in 2004 of Eurex, the brash German-Swiss exchange that has surged to No. 1 in world futures trade, is threatening to shake up the clubby world of Chicago exchanges.
The Chicago Mercantile Exchange and Chicago Board of Trade -- Nos 2 and 3 in world futures volume -- have bickered in the past. In practice, they prospered by not competing with each others' contracts. Eurex may end that cozy era.
"The end game is to wrestle these financial markets away from Chicago," said one CBOT director.
Speculation abounds about whether Eurex will enter the fray by buying an existing exchange, starting a new one, or some combination of the two.
Since announcing in January it would set up shop in the United States in early 2004, Eurex has been cagey about revealing specifics. But industry watchers think details will start to emerge very soon.
The first step could be for it to hook up with the Board of Trade Clearing Corp., the entity that has been clearing CBOT trades for 77 years. The CBOT last week said it was forging a clearing arrangement with the CME, a move that many in the industry believe was prompted by the threat of Eurex establishing a clearing link with BOTCC.
Industry sources said Eurex has been in talks with BOTCC about a clearing link for years and could unveil a deal soon.
BUY AN EXCHANGE?
Once Eurex establishes a link to clear its trades, the next step could be to buy an exchange, industry sources said. A prime candidate would be the BrokerTec Futures Exchange and BrokerTec Clearing Co. of Jersey City, New Jersey, allowing Eurex to inherit a relationship with BOTCC and possibly tip-toe through a regulatory minefield.
BrokerTec, a Wall-Street-backed, all-electronic exchange that lists financial futures such as U.S. bonds, grew out of frustration with the CBOT and its commitment to an open-outcry trading floor. Eurex also is all-electronic.
Despite its blue-chip pedigree, BrokerTec has made few inroads on CBOT's franchise. Its trading volume in March was 182,950 contracts. CBOT 10-year note futures, alone, traded an average of 539,073 contracts a day in March.
BrokerTec has outsourced clearing and processing services to BOTCC since trading started in November 2001.
Now, a BrokerTec board member, Michael McErlean, is joining Eurex's management team-in Chicago. McErlean was formerly global co-head of futures at Goldman Sachs, and once a colleague of Rudolf Ferscha, Eurex's CEO.
Sang Lee, analyst at Celent Communications, a research advisory firm in Boston, said a Eurex acquisition of BrokerTec has been one of several rumored strategies.
"It is not easy to gain exchange status in the U.S.; it is much easier to buy someone (already) in the marketplace," Lee said. "Eurex being fully electronic and BrokerTec being fully electronic, it would probably make sense."
The CBOT board member said Goldman Sachs and the big New York houses have pushed Eurex to buy BrokerTec and hook up with BOTCC to advance their electronic trading agenda.
NO REAL COMPETITION
Until now CBOT, CME and Eurex have tended to circle each other warily but each controlled their own piece of the lucrative global interest rate futures pie.
CME Eurodollars is the world's most active rate futures contract, while the CBOT trades futures on the U.S. yield curve from 30-day Fed funds to 30-year Treasury bonds.
Eurex trades the German yield curve from one month to 30 years and the Swiss curve from 8 to 18 years.
In a rare case of competition over a specific futures contract, Eurex, formed in 1998, quickly won the battle for the large German Bund futures contract with London-based LIFFE.
Eurex won the battle of the Bunds with low transaction costs and an electronic trading platform -- a strategy it is expected to repeat in the United States.
Industry sources have suggested other ways Eurex could launch in the U.S. derivatives market. Earlier this year, Eurex posted on its Web site -- and then quickly withdrew -- a draft plan for a U.S. options exchange. Eurex said the posting was made in error and was for "consultation purposes" only.
Last week, Eurex reiterated that its planned U.S. exchange would offer "a full range of derivatives on U.S. interest rates, indexes and equities." Eurex said talks with market participants and U.S. regulators were "advanced."
An options industry source said that Eurex has "definitely been looking at purchasing one of the smaller exchanges."
Spokesmen for BrokerTec, BOTCC and Eurex had no comment on any possible deals. (Additional reporting by Doris Frankel)
Copyright 2003, Reuters News Service |
