Deutsche Boerse AG plans to set up a clearinghouse in Singapore to compete with Singapore Exchange Ltd. (SGX) and IntercontinentalExchange Group Inc. (ICE) as the owner of the Frankfurt Stock Exchange and the Eurex futures market seeks to benefit from new financial regulations.
The expansion will help increase net annual revenue to as much as 2.7 billion euros ($3.7 billion) within the next four years, Chief Executive Officer Reto Francioni said in Frankfurt today. Deutsche Boerse had sales of 1.9 billion euros in 2013.
“The re-regulation of the capital markets is, on balance, not a burden, but an opportunity for market infrastructure providers,” Francioni said at the company’s annual earnings press conference.
Deutsche Boerse is setting its sights on Asia after the European Commission blocked its purchase of NYSE Euronext, owner of the New York Stock Exchange and London’s Liffe futures market, in 2012. The European Union has agreed to increase competition among derivatives exchanges, weakening the control of the largest operators.
ICE won an Asian trading and clearing license for derivatives with the purchase of Singapore Mercantile Exchange Pte. earlier this year.
Francioni said Deutsche Boerse will focus on clearing over-the-counter derivatives, collateral and liquidity management and further expansion in Asia to drive growth this year. The CEO has previously said Europe risks losing its competitiveness amid the overhaul of the region’s financial-market rulebook.
The company, which has signed an agreement to help Bank of China Ltd. gain access to European markets, also has an agreement with the Korea Stock Exchange to trade Kospi Index derivatives outside the local time zone.
It began a technology partnership with the Bombay Stock Exchange in March, and the company’s Clearstream settlement unit is working on a joint collateral-management service with Singapore Exchange.
“Singapore will be the focal point of our Asian activities,” Francioni said, adding that the exchange is setting up the new clearinghouse in consultation with local regulators and global customers.
New regulations are pushing more transactions through clearinghouses for processing as policy makers seek ways to reduce systemic risk. The venues operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the threat from a trader defaulting.
Competition is increasing in Asia. Singapore Exchange and Korea Exchange Inc. said last year they’re exploring joint trade-processing projects for over-the-counter financial derivatives. KRX is also looking at OTC clearing with Hong Kong Exchanges & Clearing Ltd., while Japan Exchange Group Inc. is seeking to expand its post-trade operations.
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