February 25, 2013 12:48 pm

CME pushes for talks with Deutsche Börse

CME Group, the US derivatives exchange operator, has pushed for talks with Deutsche Börse in a sign that the consolidation that is sweeping through the world’s largest trading venues shows little sign of slowing.

The two parties have held talks, at CME’s behest, in recent months as both sides consider their long-term strategies following IntercontinentalExchange’s planned $8.2bn purchase of NYSE Euronext, according to two people familiar with the situation.

The response from Deutsche Börse has been lukewarm, however, with the German group still bruised from its failed attempt to merge with NYSE Euronext just over a year ago, the people said. European regulators blocked the deal on concerns the combination would lead to a monopoly in interest rate derivatives trading in Europe.

“Deutsche Börse is not in merger negotiations with CME Group,” the German group said in a statement. “As previously communicated, [our] primary strategic focus is on organic growth, mainly by expanding its business into growth regions in Asia, extending its services for unsecured and unregulated markets, and expanding its combined market data and IT business.”

CME, the world’s largest futures market operator, declined to comment.

“In the case of a merger being pursued, we anticipate political and anti-trust risk, since the combination would bring together the largest futures exchanges in the US and European markets,” said Peter Lenardos, director of diversified financials at RBC Capital Markets in London.

Deutsche Börse shares, which rose as much as 10 per cent before the denial was issued, closed up 5.6 per cent at €49.15 on hopes of further exchange consolidation.

The move comes as rivals examine ways to grow as persistent low interest rates damp volatility and investor appetite for trading asset classes such as derivatives and equities.

The industry faces a significant shake-up after ICE agreed a deal for NYSE in December. The deal, currently going through regulatory and shareholder approval, is likely to create one of the world’s largest derivatives markets operators, and a serious competitor to CME and Deutsche Börse.

While the CME has little interest rate derivatives business in Europe, it has applied to set up a derivatives exchange in London. Interest-rate futures trading is the CME’s biggest business in the US, trading eurodollar futures and euribor futures while Deutsche Börse’s Eurex platform dominates long-term trading of Euro-Bund derivatives.

A move by the CME would look to exploit weakness in the valuation of Deutsche Börse. The American group’s $19bn market capitalisation is about 60 per cent greater than that of its German rival, whose shares have remained flat after the failed merger with NYSE. Like other US exchanges, CME shares have climbed since the start of the year and are up 15 per cent in the year to date.

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