Aware of regulatory hurdles that prevent competition in flagship futures contracts, exchange groups and financial firms are setting up budding derivatives markets that will bank on innovative listings to attract institutional investors.
Major global derivatives exchanges such as CME Group Inc., Chicago, control the listing, trading and clearing of their contracts a unique franchise that has discouraged competition and yielded strong profits through the years. Volumes on the CME have set records for each of the past seven years, reaching 2.8 billion contracts in 2007.
To get in the game, newcomers are ready to jump on various opportunities or alliances.
The first thing we were trying to do was effectively just get what I would call a ticket to the game, NYSE Euronext Chief Executive Officer Duncan Niederauer told analysts in a May 6 conference call, where he discussed NYSEs planned purchase of CMEs gold and silver futures contracts the New York exchanges first foray in U.S. derivatives.
This (acquisition) gave us an opportunity to now go talk to the (Commodity Futures Trading Commission) about getting a license and having real products around that, Mr. Niederauer said. He didnt disclose what other new contracts a NYSE-owned U.S. futures exchange will list.
We think that, in the futures business, there is a lot more opportunity to be innovative and that innovativeness is rewarded, he added.
Financial results speak to Mr. Niederauers point. In 2007, NYSE Euronext which includes the Liffe derivatives market in London but no U.S. futures operations earned $205 million with a 27.3% profit margin, while CME earned $659 million last year with a 59.8% profit margin.
The deal was done in four days, an industry source said of the precious metals agreement, announced March 14. The CME initiated the talks about the sale with the NYSE, in an effort to avoid possible antitrust issues in the Chicago exchanges bid for Nymex Holdings Inc., the parent of the New York Mercantile Exchange.