CME Group Aims To Strengthen Ties To Asian Exchanges

CME Group Inc. (CME) is exploring ways to strengthen relationships with exchanges in China and Japan, according to the futures market operator's chairman emeritus.

The Chicago-based futures trading behemoth could add the China Financial Futures Exchange to a roster of cooperation agreements with other Chinese markets, and would like to establish closer ties with the Tokyo Commodity Exchange Inc., CME's Leo Melamed said at an industry event Thursday.

CME, the world's largest futures exchange by volume, has favored partnering with foreign-based exchanges over the large-scale deal making pursued by its biggest peers in the past year, often to little effect.

This week CME doubled its stake in the Dubai Mercantile Exchange, which CME's New York Mercantile Exchange unit helped establish in 2007, and the company also maintains ties to platforms in Malaysia, India and Korea.

Asia has surpassed North America and Europe as the world's busiest market for derivatives trading, boosted by growing economies and a vibrant retail-investor base. In 2010 the region accounted for 39.8% of global volume in exchange-traded futures and options contracts, according to figures compiled by the Futures Industry Association.

Melamed, who leads CME's "strategic steering committee" and for decades has acted as the Chicago Mercantile Exchange's envoy to China, said that he and CME President Phupinder Gill have been in talks with officials at the China Financial Futures Exchange, or CFFE, about possible venues for cooperation.

The CFFE launched in 2010 as the sole destination for trading a new slate of futures on the country's leading stock index, after years of delay. More than 50 million contracts traded on the market last year, up 9.9% from the market's first year of operation, according to FIA figures.

The CFFE next seeks to reintroduce futures on Chinese government bond yields, and has been looking for input from local brokers ahead of a possible launch later this year, the Wall Street Journal reported this month.

CME has previously secured so-called "memorandums of understanding" with other Chinese derivatives exchanges in Shanghai and Zhengzhou, and Melamed said such a link with the CFFE was one possibility. "But I don't think it will happen tomorrow," he said.

Typically such agreements involve open dialogue around market practices and sometimes can produce coordinated efforts to develop particular financial instruments. Last month Hong Kong Exchanges & Clearing Ltd. (0388.HK) signed such a memorandum of understanding with the CFFE, the nascent Chinese exchange's first such coordination with a non-domestic exchange group.

Melamed said that in Japan, CME is looking for ways to work with the Tokyo Commodity Exchange, or TOCOM, which has watched from the sidelines as the Tokyo Stock Exchange and the Osaka Securities Exchange plan a merger for early next year.

While the TOCOM handles an estimated 90% of Japanese commodity futures trade, the exchange has been seen by analysts as risking isolation after the merger of its peers into a larger group with integrated technology.

"We very much want to help [the Tokyo Commodity Exchange]," said Melamed. He declined to detail specifics of any cooperation.

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

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