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NYSE deal sets stage for big EU derivatives battle

London, December 22, 2012

Intercontinental-Exchange's (ICE) $8.2 billion takeover of NYSE Euronext sets the scene for a four-way battle over Europe's lucrative financial derivatives market.

ICE's audacious swoop, announced on Thursday, gives the upstart commodities and energy bourse control of NYSE Liffe, Europe's second-largest futures exchange, and a major advantage over US rivals CME Group and Nasdaq OMX.

All three want to challenge Deutsche Boerse's European dominance as a shake-up in banking regulation is expected to increase demand sharply for clearing financial derivatives through such exchanges.

"The deal would place a bigger and more aggressive competitor on Deutsche Boerse's doorstep," said Berenberg Bank analyst Richard Perrott.

Regulatory changes in the wake of the financial crisis are forcing banks to channel derivatives business through clearing houses and regulated exchanges to ensure their risk positions can be better monitored than they were when bank dealers were trading complex contracts directly among themselves.

ICE's takeover of NYSE Liffe will give it an advantage of existing presence in Europe over Chicago-based CME, owner of the world's largest futures market, and New York's Nasdaq, both of which plan to open their own London-based exchanges next year. While the New York Stock Exchange, an enduring symbol of American capitalism, is NYSE Euronext's prestige business, London's Liffe is the real jewel in the crown.

With profits from stock trading significantly eroded by new technology and the rise of other places for investors to trade, the stock market businesses like NYSE are less valuable to ICE.

Indeed, the company has said it will try to spin off NYSE's Euronext European stock market businesses in a public offering, generating speculation, denied by the company, that it may also have little interest in the NYSE trading floor on Wall Street.

NYSE made an operating income of $473 million from Liffe in 2011 on revenues of $861m compared to an income of $533m on revenues of $1.3bn from its equities business.-Reuters




Tags: Europe | NYSE Euronext |

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