CME Group is considering offering clearing services to exchanges in Europe as the largest US futures exchange establishes a beachhead in the region by launching a new clearing house in London on Friday.
The move into clearing in Europe highlights the Chicago-based operator’s ambitions to expand into Europe, where CME’s two biggest rivals, IntercontinentalExchange (ICE) and Deutsche Börse, have established clearing businesses.
It comes as clearing has been thrown into flux amid a wave of exchange mergers. The CME’s move to start clearing in London also comes a month after LCH.Clearnet, the dominant clearer in the UK, launched clearing of over-the-counter derivatives in the US in competition with the CME.
A clearing house stands between two parties to a trade, stepping in to guarantee that trades are completed even if one party defaults.
CME Clearing Europe, the US group’s London-based clearing house, will start by clearing in 153 OTC commodity contracts such as WTI and Brent crude swaps, freight forwards and swaps on rapeseed oil, which is used in food and cosmetics and in making biodiesel.
This pits the CME against ICE, which has offered clearing in similar Brent and WTI swaps for some years on ICE Clear Europe, also based in London.
Andrew Lamb, chief executive of CME Clearing Europe, conceded there was a “large overlap” between his business and that of ICE. “There’s no doubt that we are a head-to-head alternative to ICE Clear Europe. But the absolute intention is to expand that initial range [of products] into other areas.”
He said the launch of CME’s London clearer meant there were now two competitors for ICE in the US and Europe, including CME’s existing US clearing house.
Mr Lamb said that CME Clearing Europe aimed to offer “as complete a range of clearing services” in Europe as CME already does in the US”.
“There would also be nothing stopping us clearing for third party exchanges. We’d definitely be open to that,” Mr Lamb said.
Speculation has been rife that CME wants to poach the business of clearing trades at the London Metal Exchange from LCH.Clearnet. Mr Lamb declined to comment. The LME this week said it was studying setting up its own clearing house.
CME initially applied to the UK regulator, the Financial Services Authority, to set up a clearer in London to clear credit default swaps. But last year CME changed tack, saying it would start clearing OTC energy and commodity contracts.
The switch came as ICE grabbed the lion’s share of CDS clearing in the US and Europe. But last week ICE was hit with an antitrust probe from the competition authorities in Brussels, which is investigating special profit-sharing arrangements and preferential tariffs it granted to nine banks with which it is involved in clearing.
Mr Lamb said CDS clearing was still on the agenda and it was possible that CME Clearing Europe could launch CDS clearing for non-banks users of such products this year. “We haven’t lost track of financial OTC derivatives, they are absolutely on the radar.”
CME Clearing Europe will launch with 15 members, including Bache Commodities, BNP Paribas, Citigroup, Deutsche Bank, HSBC, futures brokers MF Global and Newedge, RBS and UBS.