London Stock Exchange Group Plc for the first time confirmed that it will start a futures exchange to compete with the entrenched derivatives markets owned by its rivals Deutsche Boerse AG and Intercontinental Exchange Inc.
The project, called Curve Global Ltd., is a venture with six banks and Chicago Board Options Exchange, according to a statement Friday. The consortium is up against the effective monopoly that Deutsche Boerse and ICE enjoy in offering listed derivatives on government debt. While LSE had kept quiet about Curve, the exchange’s existence had been revealed in several news reports.
People in the know referred to the new market as “Project Rita” when work began in 2013. The code name was a nod to the love interest in the movie “Groundhog Day,” in which Bill Murray’s character is condemned to repeat the same day over and over until he wins the love of Andie MacDowell’s character, Rita. The industry’s repeated failed attempts to create a new futures market bear a resemblance to the plot of “Groundhog Day.”
Bill Templer, a managing director at Faventus Consulting, will probably become Curve Global’s chief executive officer, according to people familiar with the discussions. Templer has worked at Morgan Stanley and UBS Group AG. Cathryn Lyall, a director at Minnamurra Consulting Ltd., is likely to be the new market’s chief operating officer, said the people, who declined to be identified citing confidentiality. Lyall has worked at ICAP Plc and the Chicago Board of Trade.
The London exchange operator has already diversified into clearing and indexes, but derivatives trading remained a gap in its portfolio. However, regulations put in place since the last financial crisis may be a key to helping LSE fill that hole.
Basel III rules require banks to carry more capital to absorb potential asset losses. The hope is that they will be able to reduce capital holdings through a process known as portfolio margining. The service reduces the amount of derivatives that appear on a bank’s balance sheet. It works by offsetting futures trades against swap trades that are held in the same clearinghouse.
That’s where LCH.Clearnet Ltd., the clearinghouse majority-owned by London Stock Exchange Group and the world’s biggest swaps clearer, comes in. By reintroducing futures to LCH, Project Rita could lessen the banks’ capital burden.
The new market will offer futures trading based on U.K. and European government debt, and short-term interest rate contracts in Euribor and Short Sterling and long-term interest rate futures in bund, bobl, schatz and gilts. Additional products will be in the coming months.
Examples of failed attempts to start new futures markets include Eurex U.S., which shut after two years of trying to break into U.S. rate futures in 2006. ELX Futures LP in 2009 was unable to put a dent in CME Group Inc.’s business. Brokers including UBS Group AG held talks in 2008 on starting a derivatives exchange named Project Rainbow that never gained traction.
The London exchange operator is investing 9.5 million pounds ($14.7 million) while the other investors will provide 20.5 million pounds.
CurveGlobal Ltd. was registered on Sept. 24 with the U.K. Companies House. Lisa Condron, secretary at the London exchange, was listed as a director. LSE was listed as a corporate director when the document was filed.
source: Bloomberg
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