LSE moves to meet demand for super liquid derivatives

London Stock Exchange Group is to launch a ‘Super Liquid’ futures product on Monday as the firm seeks to reposition its derivatives offering amid an increasingly competitive market.

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London Stock Exchange Group (LSEG) is to launch a ‘Super Liquid’ futures product on Monday as the firm seeks to reposition its derivatives offering amid an increasingly competitive market.

The FTSE UK Large Cap Super Liquid index future will be tradeable from Monday 7 October and will consist of 35 of the most liquid FTSE All Share index stocks.

LSEG has launched the product following its 100% acquisition of Turquoise Derivatives, the London-based derivatives market previously owned by Turquoise, in which LSEG holds a majority share.

The new product is designed to give similar investment performance to the FTSE All Share index, but make it far more liquid.

“The FTSE Super Liquid index futures have been developed in response to industry demand, and an appetite for more liquid UK products,” said Nicolas Bertrand, head of equity and derivatives markets at LSEG.

“It has a high correlation with the FTSE All Share but offers much greater liquidity as it only consists of the most liquid stocks in that benchmark.”

While there is a wide variety of different listed derivatives products in Europe today, many see very little trading activity as they do not meet the needs of traders, according to Bertrand. LSEG hopes that by listening to feedback from members when developing products it can capture greater market share at a time when derivatives volumes are depressed across Europe.

As part of the acquisition of Turquoise Derivatives, the venue has been renamed the London Stock Exchange Derivatives Market and become a regulated market of a recognised investment exchange (REI), which Bertrand said will bring value to its members.

“By becoming part of the regulated investment exchange, our derivatives participants will benefit from more efficient margining arrangements,” he explains. "But that’s not the only reason for doing this, as it will also become more attractive to foreign investors who are more familiar with the RIE model than with MTFs, particularly those in the US who make up a big part of global derivatives trading volumes. This also aligns our UK and Italian derivatives from a structural standpoint.”

The group is also looking to leverage its internationally-known LSE brand to attract business at a time when European derivatives trading is becoming highly competitive.

US-based CME Group is set to launch its CME Europe derivatives exchange this year, though its expected 9 September launch has been delayed. New entrant Global Markets Exchange (GMEX) Group, headed up by former Chi-X Europe COO Hirander Misra, is also set to launch in the near future and is currently seeking regulatory approval. The new entrants could shake up European derivatives trading, which has until now been dominated by NYSE Euronext, LSEG and Deutsche Börse.

LSEG may also be hoping to retake its ownership over the FTSE brand in the derivatives market, as FTSE 100-linked instruments are currently traded on the rival Liffe exchange in London, which is in the process of being acquired by US-derivatives exchange operator Intercontinental Exchange.

Commenting on the acquisition of Turquoise, Misra, CEO and co-founder of GMEX, said: “In my view given that LSEG wanted to invest in derivatives product development further and Turquoise was not fully owned by them given the sizable stakes held by the banks, the idea was to rebrand this and move it under LSEG where they can cultivate it as a 100% owner.”

Misra added that LSEG’s exchange traded derivatives business strategy could be set to change to become more innovative and said it may leverage its clearing house business LCH.Clearnet in order to achieve this.