NYSE Euronext Plans New Contracts In Futures Challenge To CME

The fledgling U.S. futures market run by NYSE Euronext (NYX) announced Wednesday it would launch a new sort of interest-rate futures contract in the coming months as the Big Board parent ramps up competition with CME Group Inc. (CME), the dominant player in domestic futures trade.

NYSE Liffe U.S. is pressing ahead against much-larger CME, planning to introduce additional metals and stock-index derivatives markets and broaden its trading services throughout 2012, according to Thomas Callahan, chief executive of the venture.

"We're certainly proving ourselves," said Callahan in an interview.

The parent of the New York Stock Exchange launched the U.S. counterpart to its London-based Liffe derivatives market in 2008, initially offering a small slate of contracts linked to precious metals and equity indexes run by MSCI Inc. (MSCI).

The effort stepped up in March 2011 when NYSE Liffe US rolled out a slate of interest-rate futures modeled on CME's core markets and supported by a new clearinghouse developed with the Depository Trust & Clearing Corp. That opened a three-way battle for U.S. rate futures trade that also includes ELX Futures LP, a bank-supported platform launched in 2009.

Since then NYSE Euronext's market share in benchmark CME contracts like Eurodollar and Treasury futures has ranged between 1% and 3%, occasionally rising as high as 4.5%, according to data compiled by Raymond James Financial (RJF). CME last year traded an average 6 million interest rate futures contracts each day, a market used by banks and hedge funds to hedge against anticipated changes in the tone of credit markets.

Duncan Niederauer, chief executive of NYSE Euronext, said in 2010 that the effort would need daily trading volume of a few hundred thousand contracts and a similar level of open trading positions to be taken seriously.

Callahan said that by late 2011 NYSE Liffe US was averaging about 100,000 contracts per day, with more than 200,000 contracts changing hands per day during some trading sessions. Open interest--the number of contracts that are outstanding on an exchange's market--surpassed one million contracts in mid-December.

In mid-2012 NYSE Liffe US intends to launch options on Eurodollar futures, which project movements in the London interbank offered rate, Callahan said. A plan is underway to allow customers access to the New York Portfolio Clearing facility, which would expand trading-collateral services now available only to clearinghouse member firms.

New futures on metals and MSCI stock-market measures are also in the works, he said.

The new contracts announced Wednesday by the firm are linked to the $400 billion daily market in repurchase deals that help banks finance trading in Treasury bonds and are planned to list early this year on NYSE Liffe US. The so-called DTCC General Collateral Finance Repo Index futures will track the average interest rate paid daily for "general collateral" repurchase agreements that involve U.S. Treasury, agency and agency mortgage-backed securities.

Callahan said the contracts could serve as a new benchmark for short-term funding rates. "At a time when the balance sheets of all banks are [under pressure], having this type of product will be helpful for banks to finance their inventories everyday," he said.

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

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