NYSE Liffe is set to launch German government bond futures
as a direct challenge to Eurex’s market-dominating
Bund, Bobl and Schatz contracts, writes Joe Parsons and
In the biggest move yet from Liffe’s new
owners, Intercontinental Exchange (ICE), the group will aim to
wrestle market share away from its
arch rival's established and super-liquid suite of Bund, Bobl
and Schatz futures.
The decision to go live with 2, 5, 10 and 30 year government
bond futures on May 27 comes 15 years after Liffe lost the Bund
The timing of the launch
also coincides with strict new rules on high frequency trading
in Germany, which according to one industry source, may give
Liffe an opportunity to build liquidity on its offering.
"The timing is interesting because of the HFT rules in
Germany. Eurex may be weaker because of the rules," the source
with knowledge of the situation told FOW.
"Eurex has had a Euribor for a very long time, so why
shouldn’t Liffe offer Bobl and Schatz."
The source added that the move seems
'politically-charged’ following the move from
Liffe to Germany 15 years ago.
A Eurex spokesperson declined to comment on
Liffe’s planned launch.
A three-way battle will now ensue within Europe as
Liffe, Eurex and Nasdaq OMX’s new NLX platform all
compete for market share in the German government bond futures
The two London-based platforms will face an uphill
battle to compete with German exchange’s bond
offerings though, which were collectively traded over 40m times
"So much of the outstanding interest is in banks who
are not in London they are in Germany, who want to see it on
the continent," another industry expert told FOW.
"Germany issues the most debt, German banks are the
primary dealers into that, they are the ones who are going to
hedge it so while you may get a whole bunch of market makers
you are not going to get the flow."
Liffe did not provide any further comment on the
Gaining liquidity on its new German bond futures will
be the key factor in the success of Liffe’s new
"I think the main factor to determine volume and open
interest is how much it differentiates with the existing
products, because if they are the same why would one go to
another exchange if they are happy trading the current
product," said David Robin, co-head financial futures and
options execution, Newedge US.
"Success will be where liquidity is and how much it
differentiates with other products - such as that from Eurex -
in order to attract that liquidity."
The products will be launched as part of a new suite of
government bond futures which also includes Swiss, Italian and
Liffe will also launch new Swapnote futures on April 22,
which will include Swiss, Sterling, Euro and US Dollar
contracts with a range of maturities.
Swap futures race
NYSE Liffe has traded its Euro and US-denominated Swapnote
futures contract since 2001 and will extend its swap futures
offering with longer maturities and other currencies.
FOW understands Eurex is targeting an early summer launch
for its first deliverable swap future, and CME has also
scheduled an April launch for its euro denominated interest
rate swap future.
Nasdaq NLX is also believed to be considering its own
offering, as the three exchanges look to compete in yet another
"We are seeing an increasing amount of opportunities for
exchanges to look at launching new products on the back of
regulatory changes and I expect to see this to continue over
the next 12 – 24 months," said Charlotte Crosswell,
CEO of Nasdaq NLX.
"We have seen a decline in interest rates volumes on the
back of a stable interest rate environment so exchanges are
also looking to new products for revenue opportunities".
"There is a lot of interest in swap futures as many people
believe that product will come to market and be successful. The
bigger challenge for all new products is how to make them
successful post launch and build liquidity."