ICE Eyes Big Growth Abroad As EU Regulators Clear The ICE-NYSE Deal

The merger of NYSE Euronext (NYSE:NYX) and the IntercontinentalExchange (NYSE:ICE) was unconditionally approved by the European Commission. The merger will make the combined entity the third largest exchange in the word, only behind the Hong Kong Exchanges and the CME Group (NASDAQ:CME), and will provide the IntercontinentalExchange an opportunity to expand rapidly into European derivatives market by exploiting the capabilities of NYSE’s LIFFE platform. ^[1]

LIFFE (short for “London International Financial Futures and Options Exchange”) is NYSE Euronext’s international derivatives business which operates derivative markets in each of Amsterdam, Brussels, Lisbon, Paris and London. It is the second largest derivatives market in Europe and will provide ICE the platform that it can leverage to race ahead of competitors like the CME Group in capturing European market share for derivatives.

See our full analysis for NYSE Euronext

ICE Looks Well Positioned

The London based European derivatives market is set to grow at a rapid pace as regulations push more over-the-counter derivatives onto centralized clearing platforms. (See our previous articles for a detailed discussion) This is a great opportunity for both ICE and CME because they are two of the leading derivatives exchanges in the world, and both exchanges are trying to capture a larger stake of the derivatives market.

The CME Group seems to have a head-start as it began clearing interest rate swaps in Europe from March this year and already has plans to launch its European futures market in London on September 9th to coincide with the date when the Dodd-Frank Act mandates all U.S. based companies to deal only in centrally cleared derivatives. ^[2]

However, this lead may not count for much because the ICE-NYSE merger is also scheduled complete around the same time or before. Once the acquisition is complete, ICE will own an industry leading European futures exchange in LIFFE to complement its in-house multi-asset-class derivatives clearing platform.

So while the CME Group will have to build out the clientele for its futures exchange from scratch, ICE could already be on its way to supremacy in this market by leveraging LIFFE’s existing client relationships.

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1. ICE to win EU approval for $8.2 billion NYSE bid, Reuters, June 17, 2013 [↩]
2. Dodd-Frank End-User Clearing Exception: Practical Considerations for Preparing Your Board, DerivSource, March 12, 2013 [↩]