LSE to abandon lossmaking derivatives exchange

London Stock Exchange Group is to shut its lossmaking derivatives exchange CurveGlobal Markets after the venture failed to make headway against rivals in the European bond market.

CurveGlobal, which was set up five years ago, will cease trading at the end of January, the LSE said late on Tuesday. Some contracts, including futures on German government debt and long-dated UK gilts, will end trading immediately because there were no open positions, the exchange added.

Ambitions

Its closure marks an end to the LSE’s long-held ambitions to challenge the dominance of Deutsche Börse and Intercontinental Exchange in the European fixed-income derivatives market, which is used by traders and investors as key indicators of sentiment in money markets.

The demise of the exchange marks the latest in a series of failures to wrestle business away from the European market's dominant players. Traders typically keep the bulk of futures business on one venue, making it easier to open and close their positions. The US exchanges CME Group and Nasdaq shut down their own efforts to break into European markets in 2017 after they were unable to make headway.

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In one final push, CurveGlobal had offered proprietary traders free trading and incentives to lure activity.

CurveGlobal was launched in 2016 by seven of the world’s biggest investment banks, the LSE and Cboe Global Markets with an initial injection of £30 million (€35 million) but has repeatedly required funding. A second round of funding in 2018 raised £20 million while the LSE had to pump in another £11 million in 2019, taking its stake to 44 per cent.

Futures

In its early days, CurveGlobal was codenamed Project Rita after the Andie MacDowell character in the film Groundhog Day whom the TV weatherman, played by Bill Murray, fails to woo.

CurveGlobal lost £4 million last year and the LSE, under a new management team, switched its attention from derivatives trading to data with the $27 billion (€23 billion) purchase of Refinitiv.

It will keep open its three-month Sonia futures until January, in part to help with the transition from the tainted Libor benchmark rate at the end of the year.

Any open positions after January 28th will be settled with cash at LCH, CurveGlobal’s clearing house. An incentive scheme, in which proprietary traders were given monthly cash awards in return for trading on the venue, was due to end on September 30th but will be terminated early. It will also shorten the trading hours of some CurveGlobal contracts.

Copyright The Financial Times Limited 2021