In a bid to enhance its efficiency in the US futures market,
NYSE Euronext Inc.
) announced the commencement of repo futures market trading
starting July 16, this year. However, the launch awaits requisite
Repo futures are contracts or financial instruments wherein a
bond futures or forward contract is sold and simultaneously an
actual bond of equal amount in the cash market is bought using
borrowed money. Accordingly, the value of repo futures will be
computed by NYSE using actual, fully-guaranteed Treasury or agency
mortgage-backed instruments that will be transacted against cash.
This business innovation has radical earnings growth prospects.
In view of above, NYSE will launch its repo futures
trading through its NYSE Liffe US that comply with the Depository
Trust and Clearing Corporation's (DTCC) trademark - GCF Repo Index.
Moreover, these repo future contracts will be cross-margined by
other cleared products at New York Portfolio Clearing (NYPC), thus
helping the company escalate its volumes generation. NYPC is
jointly owned by NYSE and DTCC.
NYSE also has an added advantage since its NYSE Liffe US has the
exclusive right to trade DTCC GCF Repo Index products, which
further paves way for the company to tap the $400 billion GCF Repo
market. Additionally, the DTCC GCF Repo Index is leading
interest-rate benchmark in the US as is the London Inter Bank
Offered Rate (LIBOR) in the UK.
However, LIBOR has been under investigation against manipulation
charges, while the benchmark rates offered by Federal Reserve have
also lost lustre following the imposition of the transaction tax on
such products by Federal Deposit Insurance Corporation (FDIC).
Hence, NYSE is optimistic about exploring the giant repo futures
Establishing a strong footing in the repo futures market appears
to be a significant step to boost NYSE's competitive leverage
against arch rival
CME Group Inc.
), who is aiming to own a futures exchange in London, as reported
by Financial Times earlier this week. CME Group is also aiming to
get cost-efficient by merging the trading costs of its interest
rate swaps and futures contracts.
On the flip side, following the fallout of its merger with
Deutsche Boerse, NYSE has been aggressively seeking out innovative
means and ways to amplify its market share since the past few
months. As a result, the company had also announced the the
European launch of a new electronic retail derivatives market in
the first quarter of 2013, while also kick-starting its own NYSE
Liffe Clearing in London expected between the second and third
quarters of 2013. Management also aims to transfer all the
derivative trades from Amsterdam, Brussels, Lisbon and Paris to
London by the first quarter of 2014.
Although expenses related to building these new initiatives will
likely weigh on the financials for some time, we believe that the
growth actions should help NYSE by enhancing its capital and cost
efficiencies, while also rendering it a competitive advantage in
the peer group, besides helping it adhere to the regulatory
provisions. Overall, these efforts will not only help NYSE
strengthen its fundamentals, but will also aid in benefiting from a
satisfactory clientele, thereby boosting the long-term operating
growth potential of the company.
Currently, NYSE carries a Zacks Rank #3, implying a short-term
Hold rating and a long-term Neutral stance.
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): Free Stock Analysis Report
NYSE EURONEXT (
): Free Stock Analysis Report
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