U.S. Futures Giant CME Group Pulls Back From Europe
April 12 2017 - 11:40AM
Dow Jones News
By Alexander Osipovich
CME Group Inc. said it would shutter its unprofitable European
futures exchange and derivatives clearing business, bringing to an
end the Chicago-based group's first attempt to open a stand-alone
exchange outside of U.S. borders.
London-based CME Europe and CME Clearing Europe will be wound
down by year's end, the firm said in a press release Wednesday, an
announcement that came three years after the European exchange was
launched.
The businesses had failed to gain traction against entrenched
incumbents such as Deutsche Börse AG and Intercontinental Exchange
Inc., or ICE, highlighting the difficulty that exchange operators
face when making forays into new territory. There is no connection
to the British vote to leave the European Union, a CME spokeswoman
said.
"It's difficult to build liquidity versus incumbents, even if
you have a very strong presence in another geographical region,"
said Rich Repetto, an analyst at Sandler O'Neill + Partners.
The two businesses lost $110 million from their launch through
the end of 2016, according to CME.
CME will maintain a "significant operation" in London, but it
will be oriented toward encouraging European customers to trade
CME's U. S-listed products, the company said.
The April 2014 launch of CME's European exchange -- which offers
trading of foreign exchange, energy and agriculture futures -- was
a signature initiative of former CME Group Chief Executive
Phupinder Gill, who unexpectedly retired late last year. He was
replaced by longtime chairman Terry Duffy, who added the CEO title
upon Mr. Gill's exit.
Since taking the CEO job, Mr. Duffy has stressed a focus on
businesses that add to CME's bottom line over long-term initiatives
that may take years to turn a profit.
European clients traded an average of 2.6 million contracts a
day across all of CME's exchanges last year, compared with average
daily volume of 15.6 million from customers world-wide, according
to CME. The U.S. exchange group says it has seen a growing share of
trading activity during European and Asian trading hours in recent
quarters.
CME Clearing Europe, launched in 2011, was a bid to grab market
share in the unglamorous but important business of derivatives
clearing -- standing in the middle of two companies entering a
trade to help protect both from default.
The financial crisis prompted regulators around the world to
force more trades to be cleared, a boon to exchange operators like
London Stock Exchange Group PLC and ICE with big clearing arms that
cater to newly regulated derivatives markets.
But CME's European clearing business never made much of a
splash. As of Dec. 31, it held $134 million in member funds
required for derivatives trades, compared with $147 billion for
LSEG's clearing subsidiary, $47.3 billion for ICE's European
division, and $37.8 billion for Deutsche Börse, according to Clarus
Financial Technology, a London-based data vendor and research
firm.
Write to Alexander Osipovich at
alexander.osipovich@dowjones.com
(END) Dow Jones Newswires
April 12, 2017 12:25 ET (16:25 GMT)
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