London Stock Exchange launches new derivatives venture – CurveGlobal

Source: London Stock Exchange

London Stock Exchange Group (LSEG) today announces the launch of CurveGlobal, a new interest rate derivatives venture with a number of major dealer banks: Bank of America Merrill Lynch, Barclays, Citi, Goldman Sachs, J.P. Morgan and Société Générale, together with the Chicago Board Options Exchange (collectively, “the Investors”).

The Investors and LSEG have signed definitive terms in respect of the venture and additional shareholders are expected to join in the coming months.

CurveGlobal plans to initially offer trading in Short Term Interest Rate (STIR) futures in Euribor and Short Sterling and Long Term Interest Rate (LTIR) futures in Bund, Bobl, Schatz and Gilts. Additional products are expected to be rolled out following the launch phase. All products designed and supported by CurveGlobal are intended to be admitted to trading on LSEG’s wholly owned subsidiary, London Stock Exchange plc’s (LSE plc), London Stock Exchange Derivatives Market, and cleared through LCH.Clearnet, subject to regulatory approvals and necessary licences.

Through CurveGlobal, LSEG and the Investors aim is to provide a competitive offering in the interest rates futures market, delivering lower transaction costs. The launch of the venture will enhance London Stock Exchange Derivative Market’s product offering and complement LCH.Clearnet’s recently announced interest rate portfolio margining service, which is expected to go live in Q1 2016, subject to regulatory approval.

Trading of CurveGlobal products on London Stock Exchange Derivatives Market is expected to go live in Q2 2016, subject to regulatory approval.

Xavier Rolet, CEO, London Stock Exchange Group said:

“We have a proven track record of partnering with our customers to deliver open access solutions that provide greater choice to the market as a whole. CurveGlobal is an exciting and innovative initiative for our customers and one that complements the recently announced portfolio margining solution from LCH.Clearnet’s SwapClear business.”

LSEG’s initial investment into CurveGlobal Limited, the joint venture company, will be £9,500,000 (approximately a third of the anticipated total funding capital requirements for the venture). The Investors will provide £20,500,000. LSEG’s initial shareholding will be 31.67 per cent but it will seek to reduce its holding to 25 per cent through the introduction of additional shareholders. The Investors will hold the remaining shares.

LSE plc will enter into a financial arrangement with CurveGlobal Limited under which LSE plc will pay to CurveGlobal Limited an amount equal to the revenues generated from the trading of CurveGlobal Limited’s new interest rate derivative products on LSE plc’s derivatives trading platform, London Stock Exchange Derivatives Market. In return, CurveGlobal Limited will make payments to LSE plc which will deliver to LSE plc a fixed return for its participation in the arrangement and, effectively, finance for LSE plc’s development of LSE plc’s trading platform to accommodate trading of CurveGlobal Limited’s new derivative products. LSE plc will separately, under a commercial services agreement, provide arm’s length corporate administration and ad hoc support services to CurveGlobal Limited.

CurveGlobal and LCH.Clearnet’s interest rate portfolio margining service will both be available on an open access basis for all participants.

Michael Davie will serve as Chairman of CurveGlobal. LSEG announced separately today that Michael, currently COO of LCH.Clearnet Group, will be transferring to LSEG as Head of Rates Services. In this new role, he will leverage the Group’s capabilities, and his own extensive OTC experience, to deliver a comprehensive Rates offering to our global buy-side and sell-side customers. For the last five years, Michael has worked in a variety of leadership roles in LCH.Clearnet Group, and before that for over fifteen years in credit and rate markets at J.P. Morgan.

Michael Davie, Chairman, CurveGlobal Limited said:

“Rate markets have undergone considerable change in recent years, and market participants are under ever-increasing cost pressures. Customers want to safely manage risk and to maximise efficiency which the compelling combination of CurveGlobal and LCH.Clearnet’s portfolio margining will deliver.”

Edward T. Tilly, CEO, CBOE Holdings said:

“CurveGlobal represents a unique value proposition for interest rate futures users, and CBOE is pleased to be its U.S. anchor exchange. We look forward to leveraging our trading and product development expertise to help CurveGlobal drive new trading opportunities and marketplace efficiencies.”

Will Roberts, Head of Global Rates and Counterparty Portfolio Management at Bank of America Merrill Lynch said:

“Bank of America Merrill Lynch believes innovation in trading technology will drive efficiencies, promote competition and facilitate lower costs for market participants. We look forward to participating in the CurveGlobal partnership to promote greater transparency and efficiency in the market.”

Michael Yarian, Head of Rates Trading and Local Markets for Europe and Americas, Barclays said:

“Barclays is excited to be partnering with London Stock Exchange Group and other founding investors to create CurveGlobal. We believe that the partnership model will help ensure that this new derivatives platform is a success, benefitting users, the market and the industry as a whole.”

Kostas Pantazopoulos, Global Head of Interest Rate Products at Goldman Sachs, said:

“Goldman Sachs is delighted to be a founding investor of CurveGlobal. This new interest rate futures venue will bring competition to the market, giving customers better choice, greater efficiencies and lower costs.”

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