CME Plans New European Exchange

LONDON—The Chicago Mercantile Exchange Group, the world's biggest bourse by market capitalization, plans to establish a fully fledged European derivatives exchange and will submit its license application to the U.K.'s Financial Services Authority "within days," according to two people familiar with the matter.

The CME's move to create a U.K.-regulated exchange forms part of its aggressive plan to expand beyond its home market and comes as the world's biggest bourses review their global strategies. 

The new multi-asset exchange, which is expected to launch in the second quarter of next year, according to the sources, sees the CME follow its domestic rival IntercontinentalExchange into the European derivatives market and will bring it into direct competition with NYSE Liffe. 

The recognized investment exchange license, under which exchanges must operate in the U.K., is likely to be the sixth-ever issued by the FSA and the only one issued in the past five years. 

In 2009, the 114-year-old CME—which has had a small presence in London since 1979—embarked upon an aggressive push into Europe, the Middle East and Asia. In the past four years, the company has relocated its metals team to London, launched CME Clearing Europe and acquired a 50% stake in the Dubai Mercantile Exchange. 

Although the CME has partnered with other foreign exchanges to develop its product base and global presence, this will be the first time it has single-handedly launched a brand new exchange beyond the U.S.

The CME had been mulling the creation of a European bourse for some time, one person familiar with the matter said, but its plans were put on ice when a bidding war erupted for the London Metal Exchange a year ago. Acquiring the LME would have resulted in the CME obtaining a U.K. derivatives exchange license, but the CME was unwilling to match the £1.39 billion ($2.12 billion) that the Hong Kong Exchanges & Clearing 0388.HK +2.83% subsequently agreed to pay for the LME in June. 

The world's biggest exchanges are reviewing their global strategies after a string of failed mergers in the sector. The CME's move to apply for a U.K. license underlines the importance of creating a locally regulated entity offering regional products when expanding internationally. Although traders across the globe can connect to the CME's U.S.-regulated electronic-futures platform Globex, many trading firms prefer to operate on a regional basis under local rules. 

One person familiar with CME's plans said: "By creating a European exchange, members of the CME will be able to trade regionally relevant contracts, denominated in local currencies, in relevant time zones, with the potential for margin efficiencies when clearing their contracts."

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