Eurex ponders US pull-out

The board of Eurex will give its troubled Chicago-based US operation a month's grace before the boards of the joint venture's owners, Deutsche Börse and the SWX Swiss Exchange, decide on its ultimate fate.

Eurex refused to discuss the details of the meeting on August 5, merely stating that the board was "discussing different options" on how best to position Eurex in the US. "This process should be completed in September," the company said. There is speculation, however, that one of the options being considered is the closure of Eurex US.

The US market represents a quarter of Eurex's total transaction volume. However, its attempts to serve this market from the US rather than from Germany have caused difficulties. Eurex US has faced heavy competition from the established derivatives exchanges, notably the Chicago Mercantile Exchange and the Chicago Board of Trade. In March 2005, it filed a second antitrust suit against its two rivals, claiming they had attempted to block its entry to the US market by lowering their own fees to undercut Eurex US, and by "attempting to keep Eurex from obtaining clearing services, making material misrepresentations to members of Congress and the Commodity Futures Trading Commission and attempting to block the National Futures Association from providing regulatory oversight functions".

Eurex US was set up in February 2004 at a cost of around €60 million, says Mathias Hlubek, Deutsche Börse's interim chief executive. In late 2004, it broke the 100,000-trades-a-day barrier for the first time. However, this is still a small share of the US market: the Chicago Board of Trade reported 2.3 million trades a day in July.

US traders doubt that Eurex US could ever have succeeded against the established Chicago exchanges. "With hindsight, it is easy to say that it was a mistake to try. Actually, even with foresight it should have been obvious," one says. "But Eurex didn't believe that the Chicago Board of Trade could cut prices as they have. Their technology is as good as anyone else's, but Eurex US has not been able to get anyone to move from the other exchanges. It's very difficult to move when you have been established and trading for 20 years – you need a good reason. But when Eurex cut its prices, the Chicago Board of Trade just matched them, and there are no other areas in which it could compete and offer an advantage."

However, Hlubek has stressed in an interview with German newspaper Handelsblatt that the exchange will not pull out of the US market entirely. One option is to service US customers from Europe on its electronic trading platform. The exchange's recent move to extend trading on its main platform to 3pm Chicago time (10pm central European time) has been well received in the US. "The best thing Eurex could do is offer their European product range in the US – but they are doing this just by keeping the main platform open longer," the trader says.

Alexander Campbell