PREVIEW: Futures Exchange Leaders See New Growth Spurt

The global futures industry looks rejuvenated after a turbulent two years.

Trading volume is recovering, exchanges are scouting for new markets and deal-making is back in vogue as executives gather for the industry's annual winter confab in Boca Raton, Fla., which starts Wednesday.

What's more, the dreaded words "rogue trader" haven't been heard for some months.

There is even a nervous peace with regulators and lawmakers in Washington D.C., where recent regulatory overhaul efforts appear to be grudgingly accepted by a business that trumpeted its reliability and transparency throughout the financial crisis.

"Things look much more promising than they did a year ago," said Bernard Dan, chief executive of brokerage firm MF Global Holdings Ltd. (MF) and board member of the Futures Industry Association, which will host the event.

The risk-management business is finding its footing after the financial crisis--and subsequent scrutiny from regulators--saw the industry stumble on its trek into the investment mainstream long dominated by banking and asset management.

"We're at the very beginning of another growth spurt," said John Damgard, the long-serving president of the Futures Industry Association. "There's a lot of anxiety over what may come out of Washington, but the business is doing just fine."

Contract volumes still haven't recovered to pre-crisis levels that saw double-digit volume growth. There's still the threat that U.S. regulators could clamp down further on banks' trading activities, hitting a major customer base. Exchanges also remain wary of parallel developments in Europe.

But a long-feared cap on so-called speculative commodity trading in U.S. energy markets has proven to be less onerous than feared, and regulators on both sides of the Atlantic are poised to drive more bilateral swap transactions toward exchange-backed clearinghouses, putting within reach a $602 trillion business long eyed by exchanges.

Craig Donohue, chief executive of CME Group Inc. (CME), said the world's largest futures exchange sees the raft of new financial legislation and rule proposals as generally having little effect on CME's bottom line.

In the event that more swap trading is pushed into exchange-backed clearinghouses, the overhaul could be "a net positive" for the derivatives industry, he said.

CME is in a race with Eurex--a unit of Deutsche Boerse AG (DB1.XE)--and early leader IntercontinentalExchange Inc. (ICE) to clear transactions in the $25.5 trillion credit default swap market. It also plans to expand the service to other swap markets tied to currencies and interest rates.

Meanwhile, there are more tangible and immediate opportunities in emerging markets, some of which are climbing out of the economic downturn more quickly than others.

CME in recent weeks partnered with the Mexican Derivatives Exchange and expanded an existing alliance with Brazilian market leader BM&F Bovespa SA (BVMF3.BR) with plans to create a new trading platform, while Eurex has sought to make inroads to India and China.

Charles Li, chief executive of Hong Kong Exchanges & Clearing Ltd., said last week his company is exploring partnerships with CME and Eurex to bolster its own derivatives franchise.

For CME, which has stakes and trading agreements with a half dozen exchanges around the world, such a move "very much fits into the framework of what we're trying to do," said Donohue.

The industry is seeking to maintain a self-applied reputation for innovation, and has seen traction in new futures products introduced over the past year.

Eurex and NYSE-Liffe are developing contracts tied to stock dividends, while Donohue described the debut of CME's new ultra-long bond future as the most successful interest rate contract debut in the exchange's history.

CME has also broadened its index business with new volatility measures built around commodity markets, alongside a $600 million deal to take control of the Dow Jones Indexes. (The indexes were owned by Dow Jones & Co., a subsidiary of News Corp. (NWS) and the publisher of this newswire and The Wall Street Journal.)

The biggest deal, however, could be still to come as the Chicago Board Options Exchange moves toward a long-delayed initial public offering by the end of the second quarter.

The IPO, spearheaded by Chief Executive Bill Brodsky, is seen opening the way for the CBOE to be acquired by a larger rival such as CME or ICE, or giving the CBOE cash to make purchases of its own.

-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117; jacob.bunge@dowjones.com

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