There was an intriguing reference in the FT report of Reto Francioni’s remarks at the Deutsche Borse shareholder meeting. According to the FT, he referred to the “progressive introduction” of Eurex Clearing across the whole group and extension of risk management to all cash and derivatives markets. “A global clearing infrastructure will be formed which will significantly enhance risk management and efficiency in the use of capital for our customers.”

Taken literally, this seems to imply that Eurex Clearing would be introduced as the clearing house not just across all the group’s European markets (as everyone expects) but also for the NYSE in the USA. If this is indeed what he meant, then it is a very significant proposal, as it implies that the ambition is to create an integrated trans-Atlantic exchange group supported by a single clearing house.

However, the challenges in the way of this ambition are also huge. Not just the regulatory and legal challenges of creating a clearing house that can operate across European and US jurisdictions. Even greater would be the challenge of dislodging DTCC from its role as central counterparty for the NYSE. This is a role that is deeply hardwired into the US market. Dislodging DTCC would mean breaking up the common post-trade infrastructure which supports vigorous competition between US equity trading platforms. That may be the idea, of course.

The battle to takeover NYSE Euronext has a crucial bearing on the future of London as a global financial centre. Lynton Jones, chairman of Bourse Consult, explains to Jeremy Grant, why he thinks the Nasdaq/ICE deal will be beneficial while the Deutsche Börse bid would erode London’s standing. Video can be found here.

Much of the debate surrounding the current competing bids for NYSE Euronext from Deutsche Börse and Nasdaq/ICE has concentrated on the equities business. But from the point of view of London, what really matters is the future of LIFFE, its prime derivatives market and, it could be argued, one of the jewels in London’s crown.

If the DB bid for the NYSE goes ahead the European regulators will undoubtedly be concerned by the competition implications for the merger of two currently competing exchanges, viz. LIFFE and Eurex. This concern will almost certainly give rise to a protracted examination of the merger by the European competition authorities. It is possible that they will eventually give clearance to the merger. If this happens then, in my view, it could be extremely damaging to London as I would expect the DB (as the dominant partner in the NYSE merger with 60% of the equity) to concentrate all derivatives trading in Eurex rather than LIFFE. The DB will of course at the outset deny that this will happen, but eventually it will – look at what happened to the EOE in Amsterdam. more >>

Competition in the Australian equity market moved a little closer with yesterday’s announcement of Chi-X being granted a full securities trading license. It has been a long battle to open up this market. The story started way back in 2006 when I was working at the New Zealand Exchange (NZX) and we put together a consortium of the exchange and 5 investment banks to attempt to launch an ECN for institutional investors. Liquidnet made a similar application soon after.

Australia is a country where the granting of exchange licenses is highly political. The lobbying ability of the ASX to fight off such challenges was strong, with it citing the usual stories about the damage to the market the resulting fragmentation would cause.  These early applications were not helped by a change of government in 2007 (restarting the political discussions) and the financial crisis in 2008. The NZX initiative did not survive the delay.

However, despite the FT headline yesterday saying that ‘Chi-X gets final approval for Australia launch’, it does not mean it will actually launch on time. The approval is conditional on clearing and settlement being sorted out. In Australia, the only option for that is the ASX owned ASX Clear and CHESS, which gives the ASX some options for more delay if they so desire. There will certainly be some interesting discussions between the parties over the next few months!