NYSE Races to Enter Derivatives Game

http://www.ft.com/cms/s/3715f412-2f13-11dc-b9b7-0000779fd2ac.html

NYSE races to build derivatives trade

By Anuj Gangahar in New York

Published: July 11 2007 00:09 | Last updated: July 11 2007 00:09

John Thain, chief executive of NYSE Euronext, has made no secret of his ambition to bolster the transatlantic exchange’s presence significantly in the US derivatives market.

At a recent analyst meeting, he admitted that competing head-to-head in the trading of existing derivatives contracts in the US would be difficult.

But the task has been made still more tricky now that the Chicago Mercantile Exchange and Chicago Board of Trade have finally agreed to merge, creating a derivatives trading powerhouse in Chicago.

“I think if we’re going to develop a bigger presence in the US in the areas that are currently in existence, I think it has to be by acquisition,” Mr Thain said.

With the formation of the CME Group, Mr Thain is likely to want to act sooner rather than later to bolster his US derivatives business before the gap with Chicago becomes too big to bridge.

Two acquisitions stand out as most likely for NYSE Euronext.

The first is a quick move to buy the Intercontinental Exchange, which is now seen by analysts as a target after missing out on the CBOT to the CME.

Almost right up until the shareholder vote this week, many expected the ICE to raise its offer for the CBOT still further in a last-ditch attempt to buy it.

When it became clear late last week that it would not raise its bid, the ICE itself became a target.

A second potential move for NYSE Euronext is a deal to buy the New York Mercantile Exchange. For months, the market has buzzed with talk of a potential bid for the Nymex, with NYSE Euronext being mentioned as one possible bidder for the energy exchange along with the CME and the Deutsche Börse.

The Nymex is seen by many as being too limited in its product and geographic reach to remain an island as consolidation of the ex-change business continues. Some analysts said the ICE might itself be interested in mergingwith
the Nymex.

Adam Sussman, of the Tabb Group, the financial markets’ research and advisory firm, said: “I think this puts the ICE on the defensive and it is likely to seek either a merger of equals or be acquired by a larger exchange. A deal with the Nymex would be a good deal for both in terms of diversification.”

The Nymex and its energy products, in particular, could also be an attractive acquisition target for either CME or Deutsche Börse.

Securing Euronext from under the nose of main rival Deutsche Börse this year represented the NYSE’s first concerted push into exchange-traded derivatives, through the acquisition of Euronext Liffe, the London derivatives exchange.

Derivatives account for 22 per cent of the revenue of the combined NYSE Euronext. Mr Thain will be keen to see that number rise steeply and quickly in the coming months and years.

 

Why don't they introduce a futures contract based on the NYSE composite index?

Edit: apparently NYBOT already do one. Why does no one trade it?