Eurex clears US exchange hurdle

[krazybar]

from the FT:

Eurex on Thursday night cleared the biggest hurdle yet in its attempt to set up a US futures exchange when shareholders in the clearing house it plans to use voted in favour of a recapitalisation.

The plan by the world's largest derivatives exchange, owned by Deutsche Börse and SWX Swiss Exchange, is being bitterly opposed by the Chicago Board of Trade, which faces a challenge to its decades-long dominance of the US Treasury bond futures market because Eurex plans to offer the same range of products.

It and the Chicago Mercantile Exchange are being sued by Eurex, which claims they had illegally sought to prevent the entry into the US of a foreign competitor by offering "financial inducements" to encourage a "no" vote.

Rudi Ferscha, Eurex chief executive, said the outcome of the vote on Thursday meant Eurex had "reached an extremely crucial milestone".

"The market has voted with its feet. There was very broad support from a range of different customer groups and this is particularly important for us because if there's broad support it indicates wide interest in our exchange model," he told the FT.

The vote involved 87 shareholders in The Clearing Corporation, which will sever ties with the CBOT to act as clearer for Eurex instead. A clearing house stands between two parties to a trade and guarantees against default.

The vote was won by 50 votes to 34, with the rest abstaining. The vote had seemed finely balanced between smaller shareholders - many of them floor traders on the CBOT - and large brokerages that mostly support the entry of Eurex into the US.

Eurex officials had spent the past four days in Chicago - where the new US exchange will be based - lobbying shareholders.

Huw van Steenis, an analyst at Morgan Stanley in London, said: "I think this [vote] is improves the odds of Eurex's success. It means there is a groundswell of support from the brokerage community despite the best efforts of the Chicago exchanges to put obstacles in their way."

The recapitalisation allows The Clearing Corporation to separate a "guarantee fund" - used to protect against any trade defaults - from the shares currently held in the corporation by shareholders.

It also allowed Eurex on Thursday night to invest $15m in The Clearing Corporation and assume one seat on the corporation's board. Eurex was hit by a technical problem on Thursday that delayed the start of trade by several hours.

Frankfurt-based Eurex, said: "The reason was a software problem that developed following the interaction with a third-party software. By 12.35pm all affected customers were able to reconnect. Trading was fair and orderly from the start of trading."

 

[FX-Trader]

Clearing Corp. revamp OKd; Eurex buys stake
Big step toward a new exchange

By Mark Skertic

October 24, 2003

Eurex AG moved a step closer to achieving its goal of operating a futures exchange in the U.S. Thursday when it purchased a stake in the Chicago-based Clearing Corp.

Shareholders in the 120-year-old clearinghouse opened the door to Eurex with an unprecedented restructuring vote that changed Clearing Corp.'s name, organization and ownership.

Following the vote, Frankfurt, Germany-based Eurex paid $15 million for a stake in the clearinghouse, formerly known as the Board of Trade Clearing Corp., and Eurex Chief Executive Rudolf Ferscha was elected to its board.

Revised incorporation papers were filed in Delaware to reflect the changes, said Dennis Dutterer, Clearing Corp. president and CEO.

Clearinghouses are a middle step in the trading process, guaranteeing trades to both buyer and seller before money changes hands. Owning a stake in one eliminates one hurdle that Eurex faced in trying to open a U.S. exchange in February.

But the proposal for a new exchange has raised some concerns in Congress, and Eurex must still win regulatory approval.

Fifty of the clearinghouse's 87 members voted in favor of the restructuring, and 34 voted against it. Two abstained and one did not submit a proxy.

It was the last Clearing Corp. vote by "members." Now they're stockholders.

Following the vote, 39 shareholders sold their stock back to the Clearing Corp., leaving the exchange with 48. The clearinghouse had promised a repurchase program if the restructuring was approved, offering $16,628 per share for up to 150 shares per member.

The changes leave the clearinghouse with $106 million in capital, more than anticipated, said Chairman Michael Dawley.

"It's a vote of confidence," he said.

The changes were among the most significant in the Clearing Corp.'s history, The organization was incorporated 78 years ago, but its history dates to September 1883.

"Today the market has voted for choice, innovation and enhanced services," said Ferscha, who was in Chicago to lobby Clearing Corp. members. "This deal is a crucial milestone in the forging of our partnership with the participants in the U.S. financial markets."

Getting beyond the restructuring allows the Clearing Corp. to move forward with plans to expand its clearing relationships. It could consider deals that would allow it to clear for other exchanges in the U.S. or other countries, Dutterer said.

Approval of the Clearing Corp. changes are "gratifying," said John Damgard, president of the Futures Industry Association. Members of his organization backed the change as good for the industry, he said.

Eurex is an all-electronic exchange that has promised low per-trade prices. It also plans to offer trading in Treasury bond futures, a market now dominated by the Chicago Board of Trade.

The CBOT is preparing to move the clearing of its trades to the Chicago Mercantile Exchange. It was anger over the Clearing Corp.'s willingness to work with Eurex that prompted the CBOT to reach an alliance with the Merc.

Copyright © 2003, Chicago Tribune

 

[msfe]

Eurex welcomes approval of The Clearing Corporation

Ferscha: Market has voted for choice, innovation and enhanced services
Path clear for Eurex and The Clearing Corporation equity partnership


Frankfurt/Main, 24 Oct 2003

Following approval by shareholders of The Clearing Corporation of a corporate restructuring plan, Eurex, the world's largest derivatives exchange, welcomed the outcome of the vote that clears the way for The Clearing Corporation to clear trades for its U.S.-regulated and U.S.-based exchange, Eurex US. The Clearing Corporation shareholders overwhelmingly approved the corporate and capital alignment of the company that will establish a new Guaranty Fund and separate ownership in the company from access to the clearing organization.

"Today the market has voted for choice, innovation and enhanced services," said Rudolf Ferscha, CEO of Eurex. "Our partnership with The Clearing Corporation will give the U.S. market access to a global range of products. This deal is a crucial milestone in the forging of our partnership with the participants in the U.S. financial markets."

http://www.eurexchange.com/about/company_info/press_releases/news_pressreleases_283.html

 

[msfe]

Eurex US and National Futures Association sign agreement

Eurex to obtain regulatory services from leading U.S. provider/ Eurex US to be governed by 12-member Board of Directors

Eurex US today announced it has signed a Regulatory Services Agreement with the National Futures Association (NFA). Under the terms of the agreement, the NFA will perform market surveillance and trade practice surveillance for Eurex US. The initial term of the agreement is three years, with automatic one year renewals. The NFA is an independent, non-profit organization and currently provides regulatory services for two U.S. exchanges.

"With our Regulatory Services Agreement with the NFA, Eurex is partnering with the leading U.S. provider of regulatory services. The NFA is Eurex US' preferred choice to conduct market surveillance and trade practice surveillance to ensure that its customers are protected and that trading on the exchange is fair and orderly at all times," said Rudolf Ferscha, CEO of Eurex. "Eurex US believes that a strong regulatory program will protect customers and market participants alike." Market surveillance ensures that futures markets are free from manipulative trading, price distortions or market congestions. Trade practice surveillance monitors that customer orders are being treated fairly and all members are following exchange trading rules. In addition, the NFA will assist Eurex US in performing both background checks on potential members and financial and disciplinary checks on a continued basis, ensuring that members meet the appropriate eligibility standards.

In addition, Eurex US announced further details of its governance structure. The Eurex US Board of Directors will have 12 directors, with at least six representing a cross section of the U.S futures industry. Eurex expects that a majority of the Directors will be United States citizens or located in the United States. "This governance model ensures that a cross section of U.S. market participants - such as futures commission merchants, arbitrage firms and proprietary traders, institutional investors and independent clearers ? are included in the decision making process," said Ferscha.