With almost two months of modest trading volume under its belt, Eurex US is gearing for a fresh offensive in the battle to win market share from Chicago Board of Trade. In a two-part investigation, FO Week identifies the key factors that could bring much needed liquidity to the fledgling exchange, and asks industry figures for their responses.
Interviews by Jim Kharouf and Laurence Davison.
1 - Global clearing link
Global clearing was one of the cornerstones of the
original Eurex US launch plan, but it did not go live with the
exchange. While most participants agree that global clearing
would be a benefit, questions remain as to whether it will be
sufficient to attract volume that would not normally go to the
new exchange. How important is the link?
Mike Manning, president and ceo, Rand Financial
Services, Chicago: For our firm, it was the item of
most interest when Eurex US announced it was coming. I wanted
to trade German products and clear them here in Chicago. But
when it became apparent that Eurex products were somewhere down
the road, and they were really after volume on the Board of
Trade's market, that made it a lot less interesting. I knew the
Board of Trade would compete and it has. We're still interested
in clearing German products. The risk is that the clearing link
takes so long that firms simply lose interest.
Tom Kloet, chief operating officer, Fimat USA, New
York: I'm still not fully aware of what that is going
to mean. The devil in this one is clearly in the details.
Because when you get to clearing, how the operating process
works is integral to the success. We've had some imaginative
clearing - like when the Board of Trade and Liffe allied many
years ago. It was operationally very cumbersome. If you compare
that to the mutual offset between the CME and Singapore
Exchange, which appears to work in a way that is easy to
facilitate as clearing member, that clearly is a benefit to the
Russ Wasendorf, chairman and ceo, Peregrine Financial
Group, Chicago: It would be important to some of
Eurex's traditional customers. Many of the Board of Trade
customers are Eurex's customers so it might be important for
them to cross-margin and economise their transactions. That was
one of the initial selling points.
Peter Barkow, analyst, HSBC Trinkaus & Burkhardt,
Düsseldorf: My feeling is that what people are
really waiting for is the clearing link. That is probably a
very important trigger, then the rest will hopefully follow.
That is more a prerequisite than other factors. My feeling is
that people are eagerly awaiting the clearing link because that
will bring down their clearing costs overall, and that is why
they are probably still in a 'wait and see' position.
Joanna Nader, analyst, Lehman Brothers,
London: The clearing link is pretty important in terms
of fulfilling the overall potential [of Eurex US]. The
correlation between the US and European markets is quite high,
so you do get margin and collateral management benefits. The
link will allow trading each other's products, to the extent
that some of the mid-sized participants in Europe and the US
haven't been trading either the euro or dollar products. I
think it could still work without the global clearing link, it
just wouldn't be as successful.
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