(Corrects date of Lehman Brothers collapse to four years ago,
not five years ago, paragraph 13)
* CME applies to set up currency futures exchange
* Appoints Robert Ray as CME Europe Chief
* Will look to launch other products
LONDON, Aug 20 (Reuters) - CME Group Inc, the main
U.S. futures market operator, plans to launch its first European
exchange in a move that could break the duopoly of NYSE Euronext
and Deutsche Boerse and offset dwindling
market share at home.
The CME, which runs the Chicago Mercantile Exchange, said on
Monday it was applying to Britain's Financial Services Authority
for approval to open a London-based market trading currency
futures in mid-2013. It plans to add other types of futures at a
later date, Chief Executive Phupinder Gill said.
The CME's plan is a direct challenge to NYSE and Deutsche
Boerse, whose Liffe and Eurex exchanges dominate trading in
European futures, contracts to buy or sell assets such as bonds,
currencies or commodities for a set price at a future date.
NYSE's Liffe and Deutsche Boerse's Eurex have over 90
percent of trading in some European contracts and the threat of
a monopoly forced competition authorities to block the planned
merger between those exchanges earlier this year.
The CME's proposal is a major step up in its European
expansion ambitions and follows a challenging two years in which
the exchange known as 'the Merc' has seen its flagship West
Texas Intermediate (WTI) oil contract lose share to a London
rival.
The IntercontinentalExchange Inc saw trading volumes
of its Brent contract in London surpass the CME for the first
quarter on record between April and June of this year.
CME already runs a London-based European clearing house for
swaps, which serves to deal with some of the risks of trading
these complex derivatives. In May it lost a year-long takeover
battle for the London Metal Exchange.
Robert Ray, CME's managing director of products and
services, will become chief executive officer of CME Europe, the
company said.
FUTURES REFORM
The CME's move is timed to benefit from regulators' moves to
overhaul the region's derivatives business by encouraging
competition in futures trading and standardising the vast and
largely unregulated over-the-counter (OTC) derivatives market.
European policymakers have proposed technical changes in
areas such as clearing and the licensing of indices to ensure
that new entrants such as CME Europe can compete more
effectively with incumbents.
Regulators also want to make large chunks of the $700
trillion OTC derivatives market, which is traded privately
between banks and hedge funds, operate more like exchange-based
products such as shares.
"There could be opportunities for the CME as the provider of
clearing and trading services as regulators seek to push the
market away from its current largely uncleared, largely
bilateral, and largely voice-brokered model," said Richard
Perrott, an exchange analyst at Berenberg Bank.
Regulators are keen to shake up OTC derivatives to tackle
some systemic problems that arose after the collapse four years
ago of Lehman Brothers, a big OTC trading bank.
The CME, which also runs the Chicago Board of Trade and the
New York Mercantile Exchange, will likely have a fight on its
hands as the incumbents aggressively defend their home markets,
Perrott said.
"It tends to be difficult for new entrants to compete
directly with incumbents in futures trading. The CME will need
to offer something different in Europe, perhaps in terms of
technology or clearing, and it is not immediately obvious what
that will be."
CME has also been canvassing metals traders about the
viability of an aluminium contract to rival that of the London
Metal Exchange, which has dominated the $80 billion market for
decades, industry sources told Reuters earlier this month.
(Editing by Erica Billingham)