08.11.2014
By Terry Flanagan

CME Boosts European Energy Business

CME aims to maintain the independence of Trayport, its energy trading acquisition, to gain share in the European market.

On 30 July CME announced an acquisition of Trayport and Fenics, the foreign exchange analytics technology, from inter-dealer broker GFI Group for approximately $655m.

The following day chief executive Phupinder Gill said on the CME results call: “The acquisition of these software businesses is an important part of further developing our presence in Europe, with a particular emphasis on globalizing our energy business, which has historically been more US-centric.”

Martin Frankael, managing director for international energy at CME told Markets Media that 85% of European natural gas, power and coal trading activity takes place on Trayport.

Frankael said Trayport will continue to operate as an independent company with its own board and governance structure and remain separate from CME’s Globex trading platform.

Martin Frankael, CME

Martin Frankael, CME

“A key part of Trayport’s business model is that it provides the platform to exchanges, banks and traders and does not favour any one client at the expense of others,” Frankael added. “Users will want to ensure that CME does not receive priority.”

Although Trayport will be kept separate, Frankael said there will be opportunities to grow the business as part of the wider CME business.

In July CME reported that energy contracts traded an average of 1.6 million contracts per day, down 4% compared with July 2013.

Gill said: “We have had tremendous success with our coal offering working very closely with Trayport. Looking ahead, based on customer demand, we plan to launch European natural gas futures this year.”

CME Clearing Europe

On August 4 CME Clearing Europe received authorisation as a central counterparty clearing house under the European Market Infrastructure Regulation covering all OTC derivatives and futures products currently cleared by the business.

Emir, which requires mandatory clearing for certain derivative contracts, should become effective next year.

Lee Betsill, chief executive of CME Clearing Europe, told Markets Media: “Everybody is looking for the best solutions to manage their risk before the introduction of Emir mandate. There will be a lot of change for everyone in the industry in the coming months.”

In May CME Clearing Europe said it was the first central counterparty globally to receive Bank of England approval of a new client protection model which fully segregates collateral with an external custodian at the client level that goes beyond Emir requirements.

The model gives more favourable treatment of capital as clients have legal certainty over how client assets will be treated in all bankruptcy scenarios.

In April CME Clearing Europe received Bank of England approval to add a suite of new swap products  to its existing interest rate swap offering. Betsill said: ““We have onboarded over 80 IRS clients and we are well-positioned for volume to pick up in the coming months.”

FX

CME also introduced foreign exchange futures and options in Europe in April this year when CME Europe launched as a recognised investment exchange.

Gill said on the results call that average daily volumes in Europe have grown from a few hundred contracts to more than 2,000 contracts. July 24 was a record day for foreign exchange on CME Europe with over 3,200 contracts.

In July CME reported an average 583,000 foreign exchange volumes of per day, down 28 % from July 2013.  The average daily notional value of foreign exchange contracts traded in July was $71bn.

Fenics provides price discovery, analytics, risk management and workflow connectivity services for over-the-counter FX options. The exchange said Fenic’s strong client base in Asia, will further complement its foreign exchange product distribution.

Gill said: “Fenics has an extensive sell-side client base, particularly in Europe and Asia that will further complement CME Group’s buy-side focus FX distribution and round out CME Group’s participation in the broader FX ecosystem.”

In addition as OTC FX options come under mandatory clearing requirements, Fenics clients will be able to connect to CME’s OTC clearing and exchange traded options.

Barclays Bank was financial advisor to CME and Skadden, Arps, Slate, Meagher & Flom was legal advisor. Jefferies was financial advisor to GFI Group with Willkie Farr & Gallagher as legal advisor to GFI Group and the GFI Group management consortium.

Greenhill is acting as financial advisor to the special committee with  White & Case as legal advisor.

Featured image via Dollar Photo Club

Related articles

  1. LCH.Clearnet Pushes for Global Standard for CCP Stress Tests

    The increase created a sudden demand for liquid assets that contributed to stress in financial markets.

  2. Initial pricing will generate a net loss for the new exchange on each transaction.

  3. Regulators want to aggregate data across trade repositories.

  4. Negative Yields Vex Bond Managers

    Bill Street, SSGA's head of EMEA investing, helps clients navigate low rates, negative yields and market volat...

  5. Securing the Enterprise with 'Big Data'

    'Big data' can make detecting network breaches simpler, if implemented correctly.