Securities Exchange Weekly Notes: ICE To Complete NYSE Acquisition by November 4

The past week saw a few important developments in the securities exchange market. Most importantly, the IntercontinentalExchange (NYSE:ICE) announced that it will look to complete its acquisition of NYSE Euronext (NYSE:NYX) by November 4. The acquisition will make ICE one of the most likely candidates to dominate the European derivatives industry.

Meanwhile, other large players continue to face problems in launching their European derivatives operations. Within weeks of CME’s (NASDAQ:CME) postponement of its London-based futures exchange, the Deutsche Borse also delayed the launch of its FX futures contracts, citing the lack of necessary controls at a partner bank. We believe that ICE has a good chance of capturing market share in the European derivative space with its acquisition of NYSE LIFFE, one of the largest European derivatives players (read: After CME, Eurex Potpones FX Futures Launch).

See our full analysis for NYSE Euronext | CME Group | NASDAQ OMX

ICE’s Acquisition Of NYSE LIFFE Will Make It A Market Leader

The IntercontinentalExchange has finally announced a closure date for its acquisition of NYSE Euronext. Once completed, the deal will make ICE the third largest exchange in the world – only behind Hong Kong Exchanges and Clearing, and the CME Group. ^[1]

Although CME will still be a larger player than ICE globally, the latter is likely to have an advantage in the rapidly growing European derivatives market. Acquiring NYSE Euronext will bring LIFFE (London International Financial Futures and Options Exchange) into ICE’s fold and will give it a leadership role in the European futures market. LIFFE and Eurex, a subsidiary of the Deutsche Borse, currently control around 90% of this market, according to some estimates. ^[2]

Additionally, LIFFE is likely to be a good addition to ICE’s portfolio because it complements ICE’s multi-asset-class clearing platform. Together with a leading European futures exchange and a fully functional clearing platform, ICE will have the capability to offer its clients a breadth of derivative products and services.

CME Needs To Hurry

CME was initially scheduled to launch its London-based futures exchange on September 9. It planned to initially start with the launch of 30 FX currency futures and then expand into other products gradually. However, it had to postpone the launch twice – first to September 29 due to regulatory reasons, and then indefinitely due to a “technical issue”. (Read: CME Postpones Its London-Based Futures Exchange Again)

While we believe that CME has all the resources and experience required to sort out any technical difficulties as a quickly as possible, a significant delay in launching its futures exchange is likely to provide ICE an opportunity to cement its position in the market. In the worst case scenario, this could leave CME incapable of capturing the high growth in the European derivatives market.

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1. ICE, NYSE Euronext Merger Expected to Close Nov. 4, WSJ, October 10, 2013 [↩]
2. Eurex and Liffe face up to a future alone, Financial News, January 23, 2012 [↩]