NYSE Euronext Squares Up To CME In US Futures Contest

NYSE Euronext (NYX) executives on Wednesday fired their first salvo in what could become one of the fiercest battles in financial services as it won regulatory approval to compete with the core business of CME Group Inc. (CME), the world's largest futures exchange operator.

The New York-based exchange operator will launch its own roster of fixed-income contracts March 21, creating a three-way battle for the market in what is seen as the biggest challenge to the CME's dominance in years.

Chicago exchanges have twice fought off challenges to their Treasury and Eurodollar contracts from European rivals, and this week CME fired a pre-emptive shot with plans that mirror many of the claimed advantages of the new NYSE Euronext offerings.

"That was all headlines and no substance," said Tom Callahan, chief executive of the NYSE Liffe US derivatives unit, speaking on a conference call with reporters.

CME is already fending off a challenge from the bank-backed ELX Futures platform, whose share of U.S. Treasuries climbed as high as 5% in January.

Callahan and fellow executives declined to be drawn on specific share targets for its contracts, though said the efficiencies offered by routing them through a new clearinghouse would draw new traders into the market.

"It's going to take time to germinate," said Walt Lukken, the former acting chairman of the Commodity Futures Trading Commission who heads New York Portfolio Clearing, a joint venture with Depository Trust & Clearing Corp. that is central to the NYSE initiative.

The NYSE Liffe US unit already trades equity index and metals contracts--the latter complex acquired from CME--and NYSE Euronext Chief Executive Duncan Niederauer said last year that daily trading volume of "a few hundred thousand contracts" and a similar level of open interest is needed for the venture to be taken seriously.

NYSE Liffe US will on March 21 introduce Eurodollar futures, a lookalike version of CME's benchmark product tied to the London interbank offered rate.

Futures linked to the yields of 2-year, 5-year and 10-year Treasury notes will follow on March 28, as well as contracts on longer-duration government bonds, NYSE Euronext said Wednesday.

Trades in the new markets will be cleared through the new NYPC joint venture, which seeks to reduce traders' cost of collateral by allowing customers to group together the margin posted against futures positions alongside that used for trades in cash Treasurys.

The advantages will initially be limited to proprietary accounts of firms that are members of both NYPC and the Fixed Income Clearing Corp. division of the DTCC, which handles trading in government securities.

Callahan railed against the CME plan, noting it was limited to exchange members and excluded repo transactions.

Lukken said it was important to have a new competitive force to face the CME, though executives declined to comment on whether NYSE Liffe US might be used to handle derivatives products from merger partner Deutsche Boerse AG (DB1.XE).

The German exchange's Eurex derivatives arm tried unsuccessfully in 2004 to break the stranglehold on Treasury contracts held by the Chicago Board of Trade, which was acquired three years later by CME. Euronext-Liffe, acquired by the Big Board parent, also tried and failed to attack the CME's Eurodollar franchise in 2003.

NYSE Euronext shares were recently flat at $36.52. CME shares were down 0.5% at $304.92 after hitting a session low following the announcement.

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

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