Deutsche Borse plans derivatives clearing house in Asia

Deutsche Borse, the German exchange operator, was planning to build a derivatives clearing house in Asia, based in Singapore, as part of a strategic push into the region, two people familiar with the matter said.

The development is a sign of how Asia is emerging as the next battleground between the world's largest exchange groups as its capital markets mature beyond equities trading and respond to growing appetite among traders and companies for derivatives, especially in commodities.

The region accounts for 15-20 per cent of global exchange-traded derivatives volume, with the rest split about equally between North America and Europe, according to the Futures Industry Association.

Reto Francioni, the exchange's chief executive, said in January that "'the crucial growth" in the derivatives markets would happen in Asia and Latin America in coming years, not in Europe or the US.

The German group's plan, which is in its early stages, could involve the bourse tying up with a "strategic partner" or striking out on its own, one person said.

"The question is whether [it is done] with a partner or as a standalone [project]," the person said. Deutsche Borse declined to comment.

Establishing a clearing presence in Asia would allow Eurex, Deutsche Borse's derivatives arm, to offer clearing services in the Asian timezone through its Eurex Clearing unit for its benchmark interest rate and stock index futures contracts, which are increasingly traded out of Asia.

Deutsche Borse has done business in Asia since 1992 but has lagged behind US rival CME Group, which has been expanding in Asia from a base in Singapore. But the German operator has been working on an "Asia initiative" since the collapse of its proposed merger with NYSE Euronext last year.

In a sign of Deutsche Borse's increased focus on Asia, Mr Francioni has visited Singapore twice in the past 10 days on official business.

In February the exchange agreed a deal with Taiwan's Taifex futures exchange under which Eurex would list Taiwanese stock index futures.

Deutsche Borse could partner with SGX, the Singapore exchange, which operates a clearing house in the Asian city-state. This week, Deutsche Borse's securities settlement and custody business, Clearstream, signed a letter of intent with SGX to explore developing a collateral management service in Asia.

Magnus Bocker, SGX chief executive, said: "As the region's leading clearing house, SGX is open to partnerships and collaborations which support our business growth." SGX has held talks with LCH.Clearnet, the UK-based clearer, about possible collaboration.

The other option is the Singapore Mercantile Exchange, (SMX), a commodity bourse owned by India's Financial Technologies.

CME has said it is open to establishing a clearer in Asia but is using its recently opened clearer in London to service clients in the region meantime, according to Julien Le Noble, head of Asia-Pacific at the US group.

"While we will for the time leverage our platform in London, given the growth potential of the [Asian] region we are not excluding the possibility of eventually having clearing operations in Asia" he said.

However, industry experts warn that setting up a clearer for the region is fraught with complications arising from multiple legal jurisdictions spanning markets from India to Korea.

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