The London Stock Exchange is forging ahead with a plan to challenge the dominance of NYSE Euronext's Liffe and Deutsche Boerse's Eurex by expanding its futures trading business.
The British exchange said on Tuesday it will start trading FTSE 100 index futures, subject to regulatory approval, in the first week of June, a direct challenge to its domestic rival Liffe, the main FTSE futures exchange.
"Participants are crying out for a genuinely competitive derivatives market in Europe," said Adrian Farnham, chief executive of LSE's Turquoise system, which will host the new products.
The June launch will mark a milestone for the LSE which has been working hard in the past two years to diversify away from its main revenue earner -- share trading -- and into more lucrative lines such as futures trading and clearing services.
The June launch is the first in a series of futures and options releases over the rest of the year that will see the UK exchange ratchet up the pressure on Liffe and Eurex, which dominate European futures and options trading.
"With key market makers, proprietary trading and banks confirmed and ready to support our launch, an innovative and competitive pricing model, further new products in the pipeline and a real opportunity ahead of us, we look forward to attracting a broad pan-European customer base to Turquoise Derivatives," said Farnham.
Turquoise, which is 51 percent-owned by the LSE with the remainder held by its largest customers, said the new derivatives service will enable users to offset margin between Turquoise Derivatives and rival trading venues – a feature that sets it apart from incumbents.
All trading houses are required by exchanges to put up collateral as insurance when trading futures and the ability to offset margin across exchanges could dramatically cut the cost of trading these products, traders have said.
"Subject to the granting of appropriate consents, under this arrangement Turquoise is aiming to offer fungibility and/or margin offset with products traded on other markets that are likewise pro-competition," the LSE said in an emailed statement.
The LSE has said a new European derivatives platform is doubly important given the planned merger between Deutsche Boerse and NYSE Euronext.
The partners, whose agreed deal faces a rival bid from Nasdaq OMX and the IntercontinentalExchange, have 93 per cent of the European futures markets and 86 per cent of options trading, data from the World Federation of Exchanges show.
City A.M. Reporter