Deutsche Börse, Europe’s largest exchanges operator by market value, has made its first foray into hybrid fixed income trading with the purchase of a minority stake in Global Markets Exchange Group, a new UK start-up venue.
The German exchange said on Thursday it had paid “a single-digit” sterling sum in the millions for the minority stake in GMex, which was founded this year by Hirander Misra, former chief operating officer of Chi-X Europe, which became the region’s largest share trading venue.
London-based GMex plans to offer swap futures and derivatives indices. It has applied to the UK regulator to become a multilateral trading facility, a legal designation that allows it to trade. If approved, Deutsche Börse’s clearing business, Eurex, would process the deals made on GMex.
The tie-up is the most high-profile push to date by a European exchange into swap futures, which are hybrids of off-exchange interest rate swaps and listed futures. Investors and brokers face mandatory clearing of derivatives trades under new global legislation, but some worry it will add extra cost to trading or force investors to use products that are not tailored to their needs.
Swap futures are being explored by both exchanges and investors. They promise the economic flexibility of a swap with the inexpensiveness of a future. They were first launched in the US last year by CME Group, but take-up has been slow while regulation is being finalised.
However, CME has agreed similar tie-ups to explore the products with new US trading venues TruEx and Eris Exchange.
GMex says it provides a more accurate track of the real exposure to the changes in the yield curve than existing contracts.
“Time to market is one of the key things here,” said Brendan Bradley, global head of innovation management at Deutsche Börse. Eurex, like CME, was also developing its own swaps futures contracts, in addition to the GMex investment, he added. “We don’t think one swap futures concept will win out. There will be several that will coexist.”
Mr Misra said the investment was a validation of GMex’s business model. “What’s attractive here is that Deutsche Börse have a large derivatives franchise and they are expanding OTC clearing. We see synergies between interest rate swaps and the listed products by offsetting.”