CME Postpones Its London-Based Futures Exchange Again

September 30th, 2013 by Trefis Team
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The CME Group (NASDAQ:CME) has delayed the launch of its London-based futures exchange for a second time this month. Earlier, it had postponed the launch from September 9 to September 29 due to regulatory reasons. This time the exchange operator sighted “a technical issue” as the bottleneck and did not provide a new date for the launch. [1] (Read about the previous delay in our article here)

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Although not too much information about this development is yet available, we believe that the delay is unlikely to be long. The CME group is one of the largest and oldest exchange operators in the world. It therefore has all the resources and experience required to sort any technical difficulties as a quickly as possible.

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However, if the technical problem takes too long to solve, it could leave the CME Group incapable of capturing the high growth in the European derivatives market. Here is how:

The proposed London-based futures exchange is important because it will complement CME’s pre-existing European derivatives clearing-house. Together, a futures exchange and a clearing firm can reduce clients’ margin requirements substantially by a process called “cross-margining”. The combination is also better positioned to launch innovative products that can meet the needs of clients who switch over from over-the-counter (OTC) markets to the centrally cleared channel. Due to these reasons, clients are likely to eventually gravitate towards clearing firms that have an affiliated futures exchange.

Almost all dominant derivatives clearing firms in Europe are in the process of starting, acquiring or collaborating with a London-based futures exchange. The IntercontinentalExchange (NYSE:ICE) is in the process of acquiring NYSE LIFFE, and LCH.Clearnet has collaborated with NASDAQ NLX.

We believe that a significant delay in launching its London-based futures exchange is likely to allow CME’s competitors to cement their positions in Europe.

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Notes:
  1. CME delays London exchange launch for second time, Reuters, September 27, 2013 [↩]