Currency traders monitor exchange rates in a dealing room at the Korea Exchange Bank in Seoul on April 10, 2014. South Korea's local currency closed at 1,040.15 won to the US dollar after rising as high as 1,031.40 won at one point, the highest in almost six years. AFP PHOTO / JUNG YEON-JE

CME Group is considering buying a stake in the Korea Exchange (KRX), the US company’s chief executive said, amid fierce competition among leading exchange operators to expand their presence in Asia.

“It would make sense for us, if allowed, to participate in the upside of the exchange, particularly as we are planning to help the exchange on an international expansion,” said Phupinder Gill, CME chief executive.

“We have a firm belief in aligning our interest with that of the exchange partners with whom we deal,” he said at the annual meeting of the World Federation of Exchanges.

The two exchanges were set to deepen their partnership on Tuesday by announcing a deal that will allow trading of KRX’s currency derivatives through CME’s trading infrastructure.

The deal will open a new avenue for investors or companies seeking to adjust their exposure to the South Korean won outside Seoul market hours, who must currently rely on the offshore non-deliverable forward market.

A 2.5 per cent stake in KRX is set to come on to the market when the South Korean brokers NH Investment & Securities and Woori Securities merge, in a deal due to be completed by the end of this year. The pair together own 7.5 per cent of KRX, above the 5 per cent limit imposed on financial companies by South Korean law.

Although it is owned mostly by local brokerages, KRX has been under state control since 2009 when the government designated it a “quasi-governmental institution” citing the company’s effective “monopoly” of its market.

Ahn Sang-hwan, an executive director of KRX, said in August that there was “some concern about possible management interference if a foreign exchange buys a stake”.

However, Mr Gill played down concerns about opposition to foreign ownership. “It’s not uncommon to see that [discomfort] anywhere in the world,” he said.

CME may face competition for a stake in KRX: Standard & Poor’s and Deutsche Börse have also expressed interest. The German group’s Eurex futures arm, a key rival for CME in the global derivatives market, has since 2010 had a partnership with KRX allowing Eurex members direct access to Kospi 200 options, among the most heavily traded options contracts in Asia, after Korean trading hours.

Deutsche Börse is also building a clearing house for Asia based in Singapore, where CME’s US rival IntercontinentalExchange is also set to revive an existing clearing house in the wake of its acquisition last year of the Singapore Mercantile Exchange.

Some market participants argue that an Asian clearing house would reduce problems for CME’s Asian clients in the event of a default outside the region. But Mr Gill said that, when the company considered the challenges facing its clients, the option of building an Asian clearing house “falls out”.

“It’s our view that . . . Asian clearing needs can be very comfortably met either from London or from the US,” he said. “We’ve seen exchanges putting the cart before the horse and we don’t think that’s the right thing to actually do.”

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