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David and Goliath had an easier time of it in the comparison stakes
By Huw Jones
The planned merger of Deutsche Boerse and NYSE Euronext will create the world’s biggest bourse with 90 percent of on-exchange traded derivatives in Europe.
It has certainly focused minds and boosted CEO airmiles.
Speakers at the Reuters Future Face of Finance Summit were upbeat about their chances of winning a slice of this market which shows more promise for the bottom line than share trading, where competition is as ferocious as margins are thin.
Chi-X Europe, busy finalising its merger with BATS, took time out to explain how it too is targetting derivatives — believing that a heady brew of shares, futures, options and ETFs on one platform will turn trading heads their way.
Last week saw the London Stock Exchange unveiling plans to turn its Turquoise pan-European platform into a derivatives winner too. And LCH.Clearnet, the clearing house, also sees
derivatives as the future.
The only way is up, it seems.
“The important thing in these markets is it’s not about first mover advantge,” is how Chi-X Europe CEO Alasdair Haynes bravely puts it.
LCH must also be hoping that is true — it wants to clear credit default swap trades, a niche ICE has largely to itself in Europe so far.
And the clearer’s CEO Roger Liddell hopes there will be an opportunity to clear derivatives linked to the STOXX indices –which are currently cleared and partly owned by Deutsche Boerse’s Eurex.
So all well and good.
If you have a killer contract everyone wants to trade, that is.
Deutsche Boerse’s Eurex was able to bulk up its derivatives volume in the Bund contract. Euronext’s LIFFE has short term interst rate derivatives in the bag for now.
On-exchange derivatives contracts are proprietary, unlike shares which have no patent and can be traded by any platform.
Past efforts to create new derivatives contracts have often run into the sand as turnover failed to materialise.
It may be a case on being able to bring a horse to a new derivatives platform but it will be harder to persuade it to drink unless the liquidity is there.
So far, nobody has a compelling answer to that dilemma.
Huw Jones, Reuters London