New Futures Exchange Seeks To Compete With CME

A new futures exchange, backed by some of the biggest banks and broker-dealer groups in the world, is apparently ready to begin operations in June. The Electronic Liquidity Exchange is aiming to break the “near-monopoly” grip the Chicago Mercantile Exchange has on futures markets in the U.S., according to a March Financial Times article.

The New York City-based exchange was established by a dozen financial firms: Bank of America, Barclays Capital, BGC Partners, Citadel, Citigroup, Credit Suisse, Deutsche Bank Securities, GETCO, J.P. Morgan, Merrill Lynch, PEAK6 and The Royal Bank of Scotland.

In October 2008, ELE named Neal Wolkoff as its chief executive. He is a former CEO of the American Stock Exchange. Before that, he served as chief operating officer of the New York Mercantile Exchange.

The FT noted this is a particularly challenging environment in which to launch a new exchange. Although through mergers and acquisitions the CME has captured nearly all of the market for financial and commodity futures, trading volume in those areas has fallen dramatically since the credit crisis started more than 18 months ago. So the fledging exchange will be facing off against a titan in a significantly diminished marketplace.

MSCI Signs Agreement With Liffe

MSCI Barra said in February it had signed an agreement with Liffe Administration and Management, the global derivatives business of NYSE Euronext, for the creation of futures contracts based on certain MSCI stock indexes. Shortly after that, on Feb. 16, futures contracts on 13 MSCI indexes listed on Liffe’s wholesale service, Bclear.

The regional indexes covered by the contracts include the MSCI EAFE and MSCI Kokusai indexes, as well as benchmarks tracking the world, Europe, the BRIC countries, the Far East ex-Japan region, emerging markets as a whole and emerging markets in Asia, Latin America and the EMEA region. Futures were also launched on the indexes of individual countries: Mexico, Brazil and Hong Kong.

CMDX Set To Go; Indexes Licensed

In March, CME Group and its joint venture with Citadel Group, CMDX, received the final clearance needed from the SEC to launch the clearing and trading of credit default swaps in the U.S.

The special exemption was the last step in getting approval for CMDX to operate as a CDS trading platform. It allows CME Group to use its existing clearing membership structure to provide clearing services to the CMDX platform. As a result of the exemption, CME Group’s clearing members that are registered futures commission merchants or broker-dealers are able to clear CDS trades on behalf of qualified customers.

In addition, CME Group and CMDX have licensed Markit’s CDS indexes and will provide clearing for CDSs based on the Markit CDX indexes, which cover North America and emerging markets, and on the Markit iTraxx indexes, which cover Europe and the Asia Pacific region. CME and CMDX have also licensed the Markit Reference Entity Database (RED) identifiers.

The Intercontinental Exchange (ICE) and the NYSE Euronext also recently began offering CDS clearing services.