Lack of fungibility harming competition claims LSE chief

Lack of fungibility harming competition claims LSE chief

Speaking at a seminar on competition within the wholesale financial market hosted by Cass Business School, Xavier Rolet hit out at the “duopoly” in derivatives trading in Europe.

Rolet said that competition was necessary in the industry but asked if it could be introduced considering dominance of Eurex and NYSE Liffe: a duopoly “which may become a monopoly”.

He said that the current market infrastructure had an impact on the openness of the market for future entrants. His comments came ahead of the launch of Turquoise Derivatives next month, a trading platform that is 60% owned by the LSE. 

Rolet also criticised the current structure of index derivative contract, the intellectual property of which are owned by exchanges.

“The creation of value in derivatives is based on the intellectual property of an index,” he said. “When we created the FTSE index we structured it so as not to have a monopoly. This is not the case with other competitors such as Stoxx.”

MP Mark Hoban, the financial secretary to the Treasury who was speaking at the event, also took issue with the model of exchange ownership of the intellectual property of derivative contracts.

“It seems odd that heavily traded products are protected by intellectual property and are not fungible,” he said.

Keynote speaker Joaquin Almunia, commissioner for competition at the EU Commission argued that competition and stability are not at odds.

However, he warned that the Commission would prevent one party from controlling any part of the market infrastructure, "including clearing".