Asian Opportunities

CME Group has fine-tuned its Asia operation to offer the spectrum of services and opportunities.

In the pursuit of serving customers in new markets, it is no secret that many eyes are on Asia. CME Group's focus on the region has led to a new business structure that is aimed at providing high-level customer service, as well as a more integrated approach to product development and strategic partnerships.

"We are now providing services to customers on local time with local staff and that makes a big difference," says Bob Ray, managing director, international products and services at CME Group. "It made a big difference when we did that in London and much of that is exactly what we're putting into Asia today."

CME Group has long been a market leader in Asia. This presence dates back to its historic mutual-offset system with the Singapore Exchange for Eurodollar futures 25 years ago. The agreement was renewed in 2006. Relationships with other exchanges in Asia, such as the Shanghai Futures Exchange and the Zhengzhou Commodity Exchange, have grown through memorandums of understanding, which are designed to foster better understanding of each others' market.

Product development has long been a focus for CME Group in Asia. In 1990, CME licensed the Nikkei 225 stock index, Japan's most widely followed and frequently quoted index of stock market performance, creating the first futures contract based on an Asian stock index to trade on a U.S. derivatives exchange. Futures contracts on the S&P Asia 50 and the FTSE/Xinhua Asia 25 have since followed. Other products of regional significance include futures on key currencies, such as Japanese yen, Korean won and Chinese renmimbi, as well as weather contracts for Tokyo and Osaka.

Most recently, CME Group has forged significant exchange partnerships in Korea and Malaysia, which leverage the global distribution capabilities of the CME Globex electronic trading platform. CME Group has taken a 25 percent stake in Bursa Malaysia Derivatives and will provide global distribution for Bursa Malaysia's benchmark crude palm oil contract. In addition, it will license the contract's settlement prices for a dollar-denominated futures product, which will be listed on CME Globex (See "Current Pulse" story on p. 75 for more information).

CME Group also has an agreement with Korea Exchange (KRX) to list the KOSPI 200 futures contract for electronic trading outside of KRX hours. This agreement is scheduled to commence by year end. Such partnerships are bolstered by two things - the NYMEX acquisition in 2008, which added many new Asia based customers, and the ongoing technology effort to open more regional local access hubs, which allows firms to connect locally to CME Globex, a major cost savings for customers.

With its broad spectrum of financial and commodity products, CME Group decided to reorganize and expand its Asia operations in spring of 2009.

"Historically, the U.S. exchanges' offices in Asia were really more about getting people connected as we transformed into electronic exchanges," Ray says. "It was also about lowering barriers to access." He adds that CME Group installed local access hubs in Singapore in 2005 and Seoul this year, "and as we did that, the level of service required by our clients accelerated as well."

CME Group's Asia operation features a new regional headquarters in Singapore with teams in Tokyo and Hong Kong. The stucture follows the London office reorganization plan with key elements such as aligning staff with specific CME Group products, increasing staff for customer relations and service, and creating a research and development team in Singapore to complement the U.S. and London offices.

"So now the question is, what can we do from a regionally specific product line, whether that comes unilaterally or jointly with, for instance, another exchange?" Ray says. "And so we're looking at how to collaborate with them in a way that offers the ultimate value creation for our customers. So that's the value of having research people on the ground in Asia."

One example of how this collaboration has worked is the London Gold Forwards contract, which was created with market participants to clear through CME ClearPort. Ray believes the crude palm oil contract partnership with Bursa Malaysia could be significant as well, as palm oil is one of the largest export commodities in the region and Europe.

"It's a two-way street with our customers," Ray says. "We're learning more about a demand from certain segments for increased clearing and localized trading presence."

Singapore, which is also the central hub for energy trading in Asia, provides CME Group with an opportunity to expand its futures, as well as clearing over-the-counter (OTC) through CME ClearPort, businesses.

"As futures trading and OTC clearing volumes pick up, you're going to see significant interaction between CME Group and customers on product origination," Ray says. "Ultimately, the number of products that are created by the sell-side and buy-side, outside the exchange structure, is enormous, and the value proposition that CME Group provides means that while we benefit from customers' input, they in turn gain from the added benefits we bring to their markets."

"As futures trading and OTC clearing volumes pick up, you're going to see significant interaction between CME Group and customers on product origination," Ray says. "Ultimately, the number of products that are created by the sell-side and buy-side, outside the exchange structure, is enormous, and the value proposition that CME Group provides means that while we benefit from customers' input, they in turn gain from the added benefits we bring to their markets."

Asia in Brief

• Twenty of the world's top 50 derivatives exchanges are located in Asia.
• Asia represented the second largest share of global listed derivatives volume last year with approximately 22 percent, behind North America with nearly 40 percent. Just 10 years ago, Asia's share of listed derivatives volume was well below 10 percent of global volume.
• China, Japan, South Korea and Taiwan are the largest importers of the world's commodities.
• As of July 2009, China held $800 billion in U.S Treasuries and Japan held $725 billion. Hong Kong, Taiwan, Singapore and India were also major holders of these securities. Sources: U.S. Department of the Treasury, FIA

Back to Fall 2009 Issue Home