New listed derivatives platforms in Europe face a tough road ahead as established venues will continue to dominate the space, a new report from financial consultancy Celent has foreshadowed.
Europe’s two largest listed interest rate (IR) derivatives venues, NYSE Liffe and Eurex, are set to face challenges from new initiatives from US-based giants. The CME Group, which runs the largest derivatives market in the US, and Nasdaq OMX, through its new NLX multilateral trading facility, are both poised to offer listed interest rate futures and options in 2013 as they attempt to carve market share from the established performers. But doing so will be difficult.
Although market volumes were lower in 2012 than 2011, both Liffe and Eurex maintained strong performance in IR derivatives, which accounted for 25% of Eurex’s derivatives volumes and 35-to-40% of NYSE Liffe’s, the report stated.
To claw some of this flow to its own venue, Celent said Nasdaq OMX’s NLX platform, due for launch this quarter, will target key market participants to immediately inject high volumes of flow onto the nascent market.
Meantime, the CME is expected to offer exchange-traded interest rate derivatives on its London-based platform only after it establishes its foreign exchange products in mid-2013, to avoid competing directly with Liffe or Eurex. The CME will also begin clearing OTC interest rate swaps in 2013.
Competition for listed derivatives in Europe is increasing as new rules governing OTC derivatives clearing in Europe look set to increase overall trading costs. As a result, flow to listed instruments, is expected to rise.
“Providers are trying to maximise their competitive advantage through their OTC derivatives clearing strategy,” said Anshuman Jaswal, senior analyst with Celent’s Securities and Investments Group and co-author of the report.
“Simultaneously, the new regulatory framework is going to involve the use of very large amounts of collateral, and trading firms are going to struggle to meet their collateral management needs in the next few years,” Jaswal said.
The report, entitled ‘Fixed income listed derivatives in Europe: Incumbents face new threats’, also states that Europe’s two leading interest rate derivatives contracts – the Euro-Bund futures and the three-month Euribor futures – had fallen by 20% and 30% respectively between 2011 and 2012, while three-month sterling futures were down just 8% and long gilt futures up 13%.