Last week’s launch delay for impending listed derivatives exchange CME Europe comes months after similar delays to a derivatives venue operated by Nasdaq OMX and is evidence of greater regulatory oversight of new venues, rather than potential flaws, a market structure expert has warned.
On Friday last week the CME Group announced its new derivatives exchange would begin trading on 30 September, three weeks after its expected launch date of 9 September.
Mark Howarth, principal consultant for London-based market advisers Bourse Consult, said such a delay was common for new exchanges seeking regulatory approval.
“Regulators try and give you a provisional date, but they can, and do, make it clear at the last minute that they need more time, but it doesn’t necessarily mean there is a major issue to be resolved,” he said.
In March, new European listed derivatives venue Nasdaq OMX NLX faced launch delays when UK regulator the Financial Conduct Authority (FCA) sought greater testing of its value-at-risk model used by designated clearing house LCH.Clearnet.
Although the FCA will officially sanction CME Europe’s operations, Howarth suggested the delay may stem from a need to consult the European Securities and Markets Authority (ESMA).
“The regulatory approach over the last few years has shifted from a fairly hands-off approach, towards a pre-approval approach through local regulators and ESMA. Anything that goes to ESMA, which most likely CME Europe’s filing, is subject to ESMA’s backlog of work at the moment.”
Howarth said the delay could be linked to a greater focus on exchange technology following recent high-profile glitches that have stalled trading, but said such outages had attracted more attention than was warranted.
“There is no way to be 100% risk-free on a trading platform. If something is breaking down every day that would be a significant concern, but an outage once a year is not majorly significant,” he said.
CME Europe will offer exchange-traded interest rate derivatives on its London-based platform after it establishes its foreign exchange products, to avoid competing directly with the region’s leading derivatives exchanges by volume, NYSE Liffe and Deutsche Börse-owned Eurex.
London-based Nasdaq OMX NLX, launched in May, and offers trading in euro- and sterling-based short-term and long-term interest rate contracts.