Eurex and CCorp Forge Link

Even as the Chicago-based Clearing Corp. and Swiss-German Eurex AG received regulatory clearance to roll out a transatlantic global clearing link, officials were more anxious to talk about the next phase of development. That's likely in part because, so far, Eurex - the world's largest derivatives exchange - hasn't been a smash hit in the U.S.

Phase one of Eurex AG's planned clearing link, which was approved in late October by the Commodity Futures Trading Commission (CFTC), will allow clearing members of CCorp to directly clear European derivatives contracts in the U.S., said Rudolf Ferscha, CEO of Eurex, in a press briefing. This is not likely, however, to increase sharply volume on EurexUS in the short term.

In phase two, which still needs regulatory approval from the CFTC, Eurex is seeking to list European benchmark products - like the DAX equity index, the EuroStoxx 50 and the Bobl - on EurexUS so that users could open and close positions on a broad portfolio of products between the U.S. and European exchange. "We need that platform to sell our products into Asia and Australia when the sun is shining in the U.S.," said the Eurex CEO. "EurexUS is more than a platform to list our U.S. Treasury products; it is our worldwide, 21-hour distribution engine."

If phase two is approved, U.S. firms trading European benchmark futures contracts on Eurex during the European trading day could choose to clear them through U.S.-based CCorp. This is important to U.S. firms that want to consolidate their U.S. and Eurex customer positions in a single segregated clearing account, either due to fiduciary obligations or because of a preference to deal with a U.S. clearinghouse that operates under U.S. rules.

Octavio Marenzi, CEO and head of the securities practice at Celent Communications, suggests this may benefit a small universe of players, such as hedge funds, asset managers, small dealers and small FCMs that need to clear in the US. But he doesn't believe this clearing link is going to appeal to the big players like Goldman Sachs and Morgan Stanley that are in London and Frankfurt and are already hooked up to Eurex Clearing. Still, the ability to clear products globally through one clearinghouse would be a massive advantage for Eurex. "It would be good for Eurex because Eurex would see itself as being that worldwide, multiasset-class clearing platform," Marenzi says.

The Cart Before the Horse?

Despite the optimism surrounding the partnership, EurexUS hasn't met the high expectations that it set for itself a year ago. EurexUS is struggling with a 5 percent market share in U.S. fixed-income derivatives contracts, raising the question of whether Eurex erred in launching the U.S. exchange without first winning approval for the Global Clearing Link. Regulatory approval for Phase One of the Global Clearing Link came eight months after Eurex AG launched EurexUS, its all-electronic derivatives platform, to compete with the Chicago Board of Trade and the Chicago Mercantile Exchange. But over the past year, the CBOT slashed its clearing fees and offered savings through its common clearing link with the CME. "Our preference would certainly have been to introduce the clearing link on Feb. 1," Ferscha said. But, "We are happy to introduce it now because it will bring the benefits that we all envisaged at the time."

Dennis Dutterer, CEO of The Clearing Corp., says there's a lot of interest in the link from the futures-commission merchants community, including both large and small firms. End-users already trading on Eurex in Europe would have the opportunity to hold their positions at The Clearing Corp., leading to the potential for reduced clearing and internal costs, since their systems are already operating and connected to CCorp, he says.

There are 63 members of CCorp that could potentially participate in the global clearing link, which enhances the distribution potential of the European exchange, Eurex's Ferscha says. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio