Futures giant begins trading at its new London exchange

The owner of the world’s largest futures market, which has been caught up in the crackdown on high-frequency trading, has launched a new exchange in London.

CME Group began trading futures contracts in 30 different foreign currencies and biodiesel yesterday, having twice delayed the project due to regulatory and technical hold-ups.

A futures contract is an agreement to buy or sell an item such as oil, corn or gold, at a fixed price on a fixed date in the future. Futures developed in agriculture enables a farmer to know exactly how much money he will get for his crop at harvest time, reducing his risk.

The Saracens rugby club-sponsor owns the Chicago Mercantile Exchange, the Chicago Board of Trade and the New York Mercantile Exchange and is being sued by three of its users who allege the company gave high-frequency traders preferential treatment ahead of other market participants.

The CME makes about 20 per cent of its revenues from such traders and has vowed to fight the lawsuit, arguing that the complaint is “devoid of any facts supporting the allegations and, even worse, demonstrates a fun-damental misunderstanding of how our markets operate”.

Earlier this month, Europe’s financial services chief Michel Barnier promised the toughest ever clampdown on high speed traders. It followed recent claims from financial writer Michael Lewis that the stock market was rigged in favour of them in his latest book Flash Boys.

In terms of the London exchange, about 40 firms have applied for membership. Additional products will be added over time. It will increase competition in a marketplace that Deutsche Boerse and Nasdaq OMX are among those looking to expand into.

Terry Duffy, executive chairman and president, said: “As a major world financial centre, London has long been an important marketplace for CME Group, providing us with critical access to many of our key clients throughout Europe. We have had an office here since 1982 and have steadily grown our presence within the European community and now plan to do so even more than ever with the launch of our new exchange, CME Europe.

He added: “London will give us best location to serve both European and Asian market participants, allowing those clients to have the choice of trading and clearing with CME in a relevant time zone and jurisdiction.”