CME CME Group Inc

By Alexander Osipovich 

CME Group Inc. said it would shutter its unprofitable European futures exchange and derivatives clearing business, bringing to an end the Chicago-based group's first attempt to open a stand-alone exchange outside of U.S. borders.

London-based CME Europe and CME Clearing Europe will be wound down by year's end, the firm said in a press release Wednesday, an announcement that came three years after the European exchange was launched.

The businesses had failed to gain traction against entrenched incumbents such as Deutsche Börse AG and Intercontinental Exchange Inc., or ICE, highlighting the difficulty that exchange operators face when making forays into new territory. There is no connection to the British vote to leave the European Union, a CME spokeswoman said.

"It's difficult to build liquidity versus incumbents, even if you have a very strong presence in another geographical region," said Rich Repetto, an analyst at Sandler O'Neill + Partners.

The two businesses lost $110 million from their launch through the end of 2016, according to CME.

CME will maintain a "significant operation" in London, but it will be oriented toward encouraging European customers to trade CME's U. S-listed products, the company said.

The April 2014 launch of CME's European exchange -- which offers trading of foreign exchange, energy and agriculture futures -- was a signature initiative of former CME Group Chief Executive Phupinder Gill, who unexpectedly retired late last year. He was replaced by longtime chairman Terry Duffy, who added the CEO title upon Mr. Gill's exit.

Since taking the CEO job, Mr. Duffy has stressed a focus on businesses that add to CME's bottom line over long-term initiatives that may take years to turn a profit.

European clients traded an average of 2.6 million contracts a day across all of CME's exchanges last year, compared with average daily volume of 15.6 million from customers world-wide, according to CME. The U.S. exchange group says it has seen a growing share of trading activity during European and Asian trading hours in recent quarters.

CME Clearing Europe, launched in 2011, was a bid to grab market share in the unglamorous but important business of derivatives clearing -- standing in the middle of two companies entering a trade to help protect both from default.

The financial crisis prompted regulators around the world to force more trades to be cleared, a boon to exchange operators like London Stock Exchange Group PLC and ICE with big clearing arms that cater to newly regulated derivatives markets.

But CME's European clearing business never made much of a splash. As of Dec. 31, it held $134 million in member funds required for derivatives trades, compared with $147 billion for LSEG's clearing subsidiary, $47.3 billion for ICE's European division, and $37.8 billion for Deutsche Börse, according to Clarus Financial Technology, a London-based data vendor and research firm.

Write to Alexander Osipovich at alexander.osipovich@dowjones.com

(END) Dow Jones Newswires

April 12, 2017 12:25 ET (16:25 GMT)

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