London Stock Exchange launches major interest rate derivatives venture
The London Stock Exchange Group is planning to launch a new interest rate derivatives venture called CurveGlobal, which initially aims to offer short term interest rate futures. Backed by several banks including Bank of America Merrill Lynch, Barclays, Citi, Goldman Sachs, JP Morgan and Société Générale, the new venture is part of the exchange’s long-held ambition to gain traction in the derivatives markets, which have historically been dominated by rivals in continental Europe.
CurveGlobal is expected to go live in Q2 next year, and promises to offer lower transaction costs. Its launch is being timed to connect with clearing house LCH.Clearnet’s recently-announced interest rate portfolio margining service, which is expected to go live in Q1 2016. The new venture, which is really a joint venture between the exchange, the named banks and the Chicago Board Options Exchange, will operate on an open access basis.
Initially, trading will be in short term interest rate futures in euribor and short sterling and long term interest rate futures in bund, bobl, schatz and gilts. Additional products are expected to be rolled out following the launch phase. All products on CurveGlobal will be traded via the London Stock Exchange Derivatives Market and cleared through LCH.Clearnet. The LSE is investing £9.5 million in the project; the remaining £20.5 million of financing will be provided by the banks and the CBOE. The LSE says it will initially hold a 31.7% share but will reduce that to 25% by bringing in more shareholders.
“This new interest rate futures venue will bring competition to the market, giving customers better choice, greater efficiencies and lower costs,” said Kostas Pantazopoulos, global head of interest rate products at Goldman Sachs. “Goldman Sachs is delighted to be a founding investor of CurveGlobal.”
“Rate markets have undergone considerable change in recent years, and market participants are under ever-increasing cost pressures,” added Michael Davie, chairman at CurveGlobal and current COO of LCH. Clearnet. “Customers want to safely manage risk and to maximise efficiency which the compelling combination of CurveGlobal and LCH.Clearnet’s portfolio margining will deliver.”
Once the platform launches, the LSE will pay CurveGlobal an amount equal to the revenues generated from trading its new interest rate derivatives products on the LSE Derivatives market. In return, CurveGlobal will pay the LSE a fixed return, which the LSE says it will use to support trading of CurveGlobal’s derivatives products on the LSE derivatives market. The LSE will also provide corporate administration and support to CurveGlobal.