CME on the offensive in challenge to Liffe’s rates

By Jonathan Spicer

NEW YORK (Reuters) – CME Group Inc, the giant U.S.-based exchange operator, will ramp up trading of European-focused interest rate products in a direct challenge to NYSE Euronext’s Liffe business, and a shift to offense after years on defense.

The Chicago Mercantile Exchange parent company said Thursday it will launch electronic trading of Euribor futures and options beginning in the second half of this year, expanding its footprint beyond Eurodollars in the massive derivatives market.

CME’s move marks a partial shift from defending its home turf in the United States, and drives the company deeper into Europe just as London-based Liffe, which handles Euribor, is about to be acquired by Deutsche Boerse AG .

The Germany bourse plans to acquire NYSE Euronext for $10.2 billion, creating the world’s largest exchange operator and claiming the vast majority of exchange-based European rates trading.

Futures and options on rates allow investors to hedge or speculate on the economy and the decisions of central banks. CME said investors will benefit from margin offsets of up to 75 percent between Euribor, Eurodollar and Treasury products.

Yet as CME has proven with a strong defense of its U.S. derivatives business, including profitable interest rates trading, breaking into new markets is no easy task.

“We see incumbent futures exchanges as difficult to displace, and thus CME faces long odds, but this opens an exciting chapter for CME as an offensive minded competitor,” Edward Ditmire, analyst at Macquarie, told clients. (Reporting by Jonathan Spicer; edited by Gunna Dickson)