UPDATE: CME Group Acquires Elysian Systems In Derivatives Buildout
December 09 2010 - 5:09PM
Dow Jones News
CME Group Inc. (CME) intensified its push into the
over-the-counter derivatives market with the acquisition of Elysian
Systems Ltd., a London-based provider of trading systems for the
energy sector.
The Chicago-based futures exchange operator will incorporate
Elysian's technology into its Clearport platform, which provides
clearinghouse services for off-exchange derivatives
transactions.
The deal is expected to close Thursday, CME said. Financial
terms were not disclosed.
Exchange operators are targeting U.K. technology providers in a
bid to capture more OTC business, amid a drive by U.S. regulators
to boost transparency and limit risks by requiring more
over-the-counter trades to be cleared. London is one of two leading
global energy-trading centers.
CME's energy business is focused in New York, but it is
expanding European operations as part of a broader effort to move
resources closer to customers, and also plans to serve the
fast-growing trading community in Geneva.
Geneva's energy sector has been gaining share from London in
recent years because of what is seen as a more business-friendly
tax and regulatory regime. The Swiss city is already a global
leader in the trading of agricultural commodities.
"This is really intended to provide more flexibility for us in
our energy business in terms of supporting the aggregation of
quotes among inter-dealer brokers," CME Chief Executive Craig
Donohue said in a presentation to investors Thursday.
An overhaul of such off-exchange derivatives trade was a key
component of the Dodd-Frank Act. The law requires standardized swap
products to be routed through clearinghouses and transacted on
regulated platforms as part of an effort to reduce systemic risk
represented by the estimated $583 trillion market.
The new regulatory landscape has raised questions around the
model of CME's eight-year-old Clearport platform, which submits
privately negotiated swap deals into CME's clearinghouse. Many of
the hundreds of products handled by Clearport are first converted
into futures contracts for the purposes of clearing, which carries
tax benefits and makes posting collateral more efficient.
People involved in the discussions have said that some U.S.
futures regulators raised concerns that transactions handled by
Clearport generally aren't agreed upon in an open market, but
negotiated privately.
Those aims could be satisfied by Thursday's deal. Elysian's
Liquid Trading Platform, which facilitates electronic trading in
energy and agricultural products as well as credit default swaps,
will be incorporated into CME's Clearport. That integration is
expected to be completed next year, and will add distribution to
over 200 trading companies.
The acquisition represents CME's second venture into electronic
trading of credit derivatives. In late 2008 it teamed with
Chicago-based hedge fund operator Citadel LLC to develop CMDX, a
platform designed to facilitate trading and clearing of credit
default swaps, before abandoning the trading portion to focus on
clearinghouse services.
Derivatives dealer banks--which dominate the development and
trading of over-the-counter derivatives like credit default
swaps--have sought to guard their territory in the business,
developing their own platforms for electronic derivatives trade
alongside in-house services to facilitate customers' clearing
desires.
CME's credit derivatives clearing service went live in late 2009
following a series of delays, and has drawn relatively little
business relative to rival IntercontinentalExchange Inc. (ICE),
which has handled more than $14 trillion in notional contract value
since debuting its platform in March 2009.
IntercontinentalExchange Inc. (ICE), which runs a London-based
energy trading platform, in 2008 bought YellowJacket, an
energy-focused off-exchange network.
-By Jacob Bunge, Dow Jones Newswires; 312 750 4117;
Jacob.bunge@dowjones.com
-Doug Cameron contributed to this article.
CME (NASDAQ:CME)
Historical Stock Chart
From Sep 2024 to Oct 2024
CME (NASDAQ:CME)
Historical Stock Chart
From Oct 2023 to Oct 2024