CME Group shuts loss-making London derivatives and clearing units

(Adds background, detail, executive and consultant quotes)

By Huw Jones

LONDON, April 12 (Reuters) - CME Group, one of the world's biggest exchanges, is closing two operations in London by year end after they ran up losses of more than $100 million, saying on Wednesday customers preferred using its U.S. operations.

The Chicago Mercantile Exchange Group, whose products include futures contracts on commodities such as wheat and cocoa, said that after closing its UK-based derivatives exchange and clearing house, it would continue to have a significant operation to serve European customers.

"While Europe continues to be a critically important and expanding market for CME Group ... our customers have shown that they prefer to access our global products, deep liquidity and greater capital efficiencies through our U.S. infrastructure," William Knottenbelt, CME Group senior managing director, international, said in a statement.

Analysts said the CME had failed to win market share in Europe, where arch U.S. rival ICE, as well as Deutsche Boerse and the London Stock Exchange's LCH, dominate.

"CME Europe had a challenging time establishing itself and was not making the headway some had hoped," said Patrick Young, an exchange industry consultant. "Thus in the short term CME Group chairman Terry Duffy consolidates his position as CEO by being seen as a cost cutter."

CME employs 400 people in London and Belfast. A spokeswoman for the company said only a "very small single-digit percentage" of those would be affected.


Since CME Europe launched, Duffy has explained its slow start by saying it takes time to get such start-ups off the ground. He took over as CEO after Phupinder Gill retired last year.

CME's London clearing house was launched in 2011 and the derivatives trading platform followed in 2014. Cumulative losses from the two operations totaled $112 million by the end of last year, mostly from the clearing unit.

Customers from Europe traded an average of 2.6 million contracts a day last year, the bulk on CME's U.S.-based platforms.

CME's EU wheat futures, launched last year in a challenge to Euronext’s wheat market, would not be affected by the closure of CME Europe as they are traded via the group's Chicago Board of Trade exchange in the United States, a CME spokeswoman said.

CME had already decided earlier this year to suspend trading in its European cocoa futures after the derivatives failed to develop liquidity since their launch in 2015.

The pullout comes ahead new European Union securities rules due next January and at a time when the Trump administration in the United States wants to cut regulation.

Britain's scheduled departure from the European Union in 2019 may also bring a loss of single market access for Britain, and unlike rival exchanges in Europe, CME does not have a base elsewhere in the bloc to build on and would have to set up new operations from scratch. (Additional reporting by Gus Trompiz in Paris and Tom Polansek in Chicago; Editing by David Holmes)

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