06.26.2012
By Terry Flanagan

Deutsche Börse Sees Opportunities Rising in the East

Deutsche Börse, the German exchange operator, has formed a partnership with an east Asian counterpart, the latest in a series of moves to expand its global presence.

It has teamed up with Taiwanese over-the-counter market GreTai Securities Market (GTSM), signing a memorandum of understanding (MoU) that calls for the parties to exchange information in order to facilitate the further development of their respective financial markets. Under the MoU, the two partners are to share knowledge and information on various business areas and regulatory developments and to assess potentials for co-operation in trading and listing.

“Deutsche Börse is open to forming any co-operation which is beneficial for both partners, raises the efficiency of markets operated by us, and creates value for our shareholders,” Jochen Biedermann, head of international affairs at Deutsche Börse, told Markets Media.

The GreTai Securities Market was formed in 1994 and offers stocks, bonds and OTC derivatives trading. With 619 listed companies, GTSM’s equity market capitalization and average daily trading value were $58 billion and $500 million respectively as of the end of May. Through GTSM’s bond trading platforms, Taiwan has been home to one of the most liquid bond markets in Asia over the past several years. GTSM, designated by regulators, is also constructing a trade repository for OTC derivatives trading.

“This is another step towards expanding our activities in Asia,” said Andreas Preuss, deputy chief executive of Deutsche Börse and chief executive of Eurex, the derivatives arm of Deutsche Börse.

Asian markets, with their ongoing high growth, are playing an increasing role in the continuing process of the globalization of capital markets, according to the German exchange.

“The exchanges in the Asian markets, including the Taiwan market, have great potential in this globalization process,” Heiner Seidel, a Deutsche Börse spokesman, told Markets Media. “And in line with our goal and strategy to grow internationally, we also see a lot of opportunities for potential co-operation between us and our Asian partners.”

The partnership with GreTai is the latest move by the exchange company to grow its global footprint. In the wake of its failed merger with transatlantic exchange giant NYSE Euronext in February, many market participants believe that one of the best alternative methods to gain scale without the need to garner substantial regulatory approval is through cross-border alliances and partnerships.

“Partnerships, such as product alliances, are the preferred method we employ to expand our offering geographically,” said Seidel. “Such co-operation creates a win-win situation for the partner exchanges and supports the development of both financial markets.”

Earlier this year, Deutsche Börse’s Eurex derivatives trading platform formed a partnership with the Singapore Exchange whereby they will provide access to each other’s co-location data centers, facilitating easier market access for clients of both.

“We are currently observing consolidation and interconnectivity trends in the global financial markets,” said Biedermann at Deutsche Börse. “So cross-border relationships such as this one are of ever increasing importance in order to keep pace with competitors. However, you may also look at this from a different angle: such cross-border relationships are the basis for innovation and one of the main drivers for building bridges between the national capital markets, facilitating the international flow of investments.”

Exchange groups including NYSE Euronext, Nasdaq OMX, CME Group, as well as the regional exchanges in Latin America and Asia, have been keen to form cross-border partnerships with other exchanges, in some form or another, particularly in an environment that has not been kind to full-on mergers and acquisitions.

NYSE most recently signed an MoU with South Korea’s Koscom, a technology firm, to develop new services and share data.

“Simply put, customers are looking for easier ways to trade many different assets globally,” Don Henderson, chief technology officer of NYSE Technologies, told Markets Media. “While mergers might have allowed us to expedite some of that, we’ve always been moving in that direction through relationships, MoUs and strategic partnerships.”

U.S. exchange operator CME has also been one of the more active in forming cross-border alliances. Its deals include order routing capabilities with the Mexican Derivatives Exchange, as well as cross-listing partnerships with Brazilian exchange operator BM&FBovespa and Bursa Malaysia, the main exchange of Malaysia. An executive from a technology provider who works regularly with CME said that more similar partnerships can be expected going forward.

The Brics Exchanges Alliance was formed late last year by exchanges from Brazil, Russia, India, China and South Africa. The first stage of the tie-up went live earlier this year, with the launch of cross-listed derivatives products on each exchange’s benchmark index. The exchanges have been growing within their local markets in recent years and now want to be seen as international players for their local investors, who can then access other Brics exchanges more easily. It is a few steps removed from a full-on exchange merger, but still offers some of the cross-border connectivity investors are looking for.

Meanwhile, Atlanta-based global futures exchange operator IntercontinentalExchange (ICE) is partnering with Brazilian clearing house and custody provider Cetip to build a new fixed income trading platform for Brazilian corporate and government fixed income instruments. Under the partnership, the Brazilian firm will develop product strategy and promotion of its usage in Brazil while ICE will provide technological expertise. The new platform is expected to be launched some time in the second half of this year.

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