The London Stock Exchange Group is lining up former Morgan Stanley and UBS futures head Bill Templer to run a new derivatives venture that plans to launch swap futures, FOW understands.
Templer, a 25-year veteran and key figure in the listed derivatives industry, is believed to be working at the exchange on the launch of swap futures, according to sources.
Details of how the new venture will be structured within the London Stock Exchange Group remain unclear but FOW has learned that the exchange is developing a swap future that will offer cross margining against the SwapClear liquidity pool.
A number of banks are currently understood to be in discussions with LSEG over their participation in the new venture.
A spokesperson for London Stock Exchange Group declined to comment.
LSEG is one of a number of European exchanges currently looking into the launch of swap futures with the Goldman Sachs-patented Deliverable Swap Future, which launched on CME in the US last year.
LSE exchange rivals Eurex and Nasdaq OMX NLX are also believed to be in advanced stages of development of a swap future.
LSEG’s majority ownership of LCH.Clearnet could prove decisive in the battle for liquidity. To date, no exchange has been able to cross margin against SwapClear, which clears most of the European interest rate swap market.
In the wake of Emir, clearing efficiencies will become central to participants choice of where to execute trades and so the possibility of opening up SwapClear to cross margining would be a significant advantage to LSEG as it seeks to build liquidity in the new contract.
It is not clear, however, how LSEG could open up SwapClear to its execution platform without being accused of contradicting its pledge to operate a horizontal clearing model within LCH.Clearnet.
Ultimately the success of any swap future is dependent upon the order flow of the large banks however.
The LSE could win their backing by offering them a share of ownership and profits on the new platform, which is their current arrangement with SwapClear.
Any new launch from the London Stock Exchange could revitalise its efforts to build a derivatives execution platform.
The exchange last year completed the acquisition of the stake in stock and derivatives exchange Turquoise it did not own and rebranded the exchange as London Stock Exchange Derivatives.
It remains unclear whether Templer will head up London Stock Exchange Derivatives or a new entity that will be launched to deliver the swap future. The timing of the LSE’s swap future launch is also unclear at this stage.