Andy Ross’s appointment as
chief exec of LSE’s Curve Global, like that of Pep
Guardiola as manager of Manchester City, was one of the worst
kept secrets in the business.
It is tempting to draw further comparisons
between the dapper managerial guru and Guardiola but the
obvious one is both face serious challenges.
Ross’s appointment is
undoubtedly a boost for the ambitious Curve project, coming
more than three months after the British exchange group said in
mid-October it was looking for a chief executive.
The chief executive vacancy was the major
question marks hanging over the project as it gears up to
launch, slated for the second quarter
Ross is unusual in that he is a
derivatives guy with expertise on both sides of the listed
versus over-the-counter divide, having worked in futures before
moving into swaps clearing more recently.
This breadth is important given the
chairman of the venture, Michael Davie, is definitely from a
The appointment this week of futures
expert Cathryn Lyall as chief operating officer gives the
senior management at Curve a nice balance between futures and
This will likely be crucial.
Curve plans to challenge the two silos of
European futures trading -- ICE Futures Europe in the short-end
of the curve and Eurex in longer-dated contracts – by
offering savings through a new clearing service from
LCH.Clearnet, which is majority-owned by the LSE Group, called
Portfolio margining is a technique whereby
clearing houses calculate the net exposure across a group of
assets with similar attributes such as interest rate swaps and
interest rate futures.
The LSE hopes
the launch of its portfolio margining service, called LCH
Spider, will make Curve compelling as it will enable savings
for clients by allowing them to offset the futures they trade
on Curve (and clear through LCH) with the swaps already cleared
in LCH’s Swapclear service.
LCH. Clearnet’s Swapclear is
the world’s main clearing house for interest rate
swaps, holding more than 90% of the global market.
The power of portfolio margining, however,
is a moot point.
Reports have claimed the value of savings
delivered by margining can be as much as two thirds or three
quarters for certain clients but banks have in private
questioned these figures and said it can be of only marginal
importance to most clients.
Eurex launched a portfolio margining
service in mid-2014, offering much the same proposition as
Spider, with the backing of Citigroup, Commerzbank and Morgan
Stanley (including a nice quote from one Andy Ross) but this
service has not taken off.
The LSE has made decent progress on the
client front. BNP Paribas became in late January the seventh
investment bank to sign up to use the platform, after Bank of
America Merrill Lynch, Barclays, Citigroup, Goldman Sachs, JP
Morgan and Societe Generale stumped up their cash in October
The inclusion in the group of CBOE
Holdings is also interesting and hints at Curve Global (to give
it its proper name) looking at the US market or to move
aggressively into options.
The big unknown, at this stage, is what
will Eurex and ICE Futures Europe do to counter the threat of
Fee cuts would be an obvious reaction but
a more ambitious response would be to look to clear their
futures into LCH.Clearnet and offer some of the same benefits
that Curve might offer.
The LSE has said it would be happy to
support that kind of arrangement under its pledge to support
the pro-competitive principle of open access.
It would be interesting to see one of the
incumbents take that step.