Magazine article Global Finance

On the Ground in Europe: "Small Is Beautiful, but Bigger Is More Sexy."

Magazine article Global Finance

On the Ground in Europe: "Small Is Beautiful, but Bigger Is More Sexy."

Article excerpt

Europe's exchanges are in a period of upheaval that threatens their autonomy and even their very existence. Swiss-German derivatives exchange Eurex and US hitech stock market Nasdaq have unveiled plans that will make them the dominant forces in Europe's liquid markets.

In October, Eurex announced that it was trading four times as many contracts as London rival Liffe-a marked turnaround from their performances 18 months ago. It makes Eurex the world's largest derivatives exchange. And as if to squeeze the last drops of liquidity from its rivals, Eurex announced that it was hitching itself to the Chicago Board of Trade (CBOT), giving members of both exchanges access to each other's products.

Says Jorg Franke, CEO of Eurex:"Small is beautiful, but bigger is more sexy as far as exchanges are concerned."

The alliance has had to overcome its fair share of obstacles. Insider wrangles between traditionalists and modernists in the CBOT's membership broke out, and as late as September the two exchanges were still ironing out the remaining problems in their alliance."It was a long time coming," concedes Thomas Donovan, president and CEO of CBOT.

With more than 300 million contracts traded in the first 10 months of 1999, Eurex's success can be pinned to the German bund. The 10-year bund future, which Eurex wrested from Liffe last year, has been the trading instrument of choice since the launch of the euro.Today it is the most heavily traded derivatives instrument in the world.

Paris derivatives exchange Matif and Liffe have been put squarely in the shade, although Liffe retains its lead in the short end of the market, where such complex instruments lend themselves more easily to floor trading than e-trading. Eurex offers screen-based trading only.

Says Franke: "Our shortterm interest rate (STIR) product is well behind that of Liffe but three times better than Matif's. …

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