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CME in Final Stage of BOE Talks on Europe Exchange, CEO Says

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Dec. 6 (Bloomberg) -- CME Group Inc. is in the final stages of talks with the Bank of England to start a new European exchange and is confident it will be allowed to offer currency futures, according to its chief executive.

As the world’s largest futures exchange seeks to allay the regulator’s concern about some aspects of settlement, it hopes for approval soon, CEO Phupinder Gill said in an interview in Singapore. Even if it was granted next week, the London-based exchange may have a soft launch because customers are winding down for the year-end, he said.

CME Europe, as the new exchange is called, has been delayed twice pending the central bank’s decision. Founded in the 19th century, Chicago-based CME’s business spans agricultural, energy, metal and financial futures. CME Europe plans to start with currency derivatives in the region. Interest-rate futures are CME’s biggest business and the exchange dominates the foreign-exchange derivatives market.

“We are working constructively” with regulators, Gill said at the Futures Industry Association Asia conference. “They are not what I characterize as endless conversations, they are progressive.”

CME is the second exchange in Europe that’s delayed offering foreign-exchange derivatives. Eurex, Europe’s largest futures market, postponed its entry after the bank it planned to use for access to the settlement system said it needed more time. Eurex planned to offer physical settlement of the derivative contracts through CLS Bank.

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The Bank of England’s questions also concern CLS, Gill said. A spokesman for the central bank declined to comment.

“CLS has a direct relationship with its Settlement Member banks, some of which offer third party connectivity to exchanges,” CLS Bank said in a statement. “CLS has requirements for exchanges connecting via third party providers but is not directly involved in the relationship between them and the Settlement Members.”

CME is trying to open a new London exchange as Liffe, the biggest London derivatives market, moves to IntercontinentalExchange Group Inc. after the acquisition of its parent company, NYSE Euronext.

CME Europe may offer commodity derivatives in the next wave of products, Gill said. CME is planning an aluminum futures contract that can be settled with physical delivery, it said in October, without providing a start date. Such a product would be a direct challenge to the LME, the world’s top metals bourse.

ICE is also coming to Asia. It agreed last month to buy Singapore Mercantile Exchange Pte for $150 million while Hong Kong Exchanges & Clearing Ltd., which owns London Metal Exchange Ltd., plans to expand commodities markets in China. CME aims to boost its headcount in Asia by as much as 27 percent by next year as trading increases, it said previously.

“The ambitions for the London exchange and clearinghouse extend beyond Europe,” Gill said. “It’s intended to meet the needs of our growing client base in Asia.”

To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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