Press

Developing a Single Range of Fixed Income Derivatives - Extension to Cash Markets Planned

Deutsche Börse Group, the Swiss Exchange and Eurex, their joint subsidiary to operate the derivatives markets, on the one hand, and SBF-Bourse de Paris acting jointly with Matif and Monep on the other, have announced plans to develop a joint market for fixed income derivatives. In July 1997 they had already agreed to cooperate on European equity indices. Their new initiative opens the way to a fully-fledged alliance also integrating the cash markets. The partners intend to finalize a formal partnership before Dec. 31, 1997 and to deliver a single range of fixed interest derivatives to the market as soon as the euro parities are fixed.

Officials of the parties involved commented: "This alliance gives us the pole position for European Monetary Union. The alliance will offer the largest derivatives market in Europe. While our equity derivatives market is by far the largest, we will also be a serious contender for the European leadership in the market for interest rate products." In 1996, the partner exchanges had a joint volume of 194 million options and futures contracts.

The partners will implement their alliance on a step by step basis, starting with euro index and fixed income derivatives. It is their understanding that the cooperation should eventually cover all products and services: equity and fixed income, cash and derivatives, trading and clearing. This will entail linking trading and clearing systems by a planned common front end technology, by cross-membership and mutual access, by harmonization of rules and regulations as well as by mutual clearing arrangements. The partners share the vision of a common virtual market with a "single log-in" to the trading systems, and the intention to offer market participants a single range of products in the most efficient way.

For existing options and futures contracts liquidity of Swiss and German products will be concentrated on Eurex and of French products on Matif and Monep. This principle will also apply once these products are denominated in euros. From mid-1998, all French fixed income products will be traded on an electronic system, NSC-VF, complementing open outcry trading in Paris. A planned front end solution will enable mutual access to Eurex and NSC-VF. Market participants on both sides will also benefit from a linkage of the clearing houses. Inter-exchange netting will significantly reduce margin requirements without impairing the exchanges' financial integrity.

Consequently, the partners have decided to jointly develop new euro-denominated fixed income products. Each product will be traded on one technical platform only, but accessible to all market members. The partners will decide at a later point in time which new products will be assigned to which platform. These decisions will be made in the spirit of parity.