In late 2016 CurveGlobal launched with major backing from LSE, CBOE and major banks including Goldman Sachs & JP Morgan. The goal? Break ICE's monopoly in European interest rate futures.pic.twitter.com/loycUoDOD2
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With the announcement that LSE is shuttering CurveGlobal in January, I wanted to pen a quick case study on CG's strategy, legitimate success & death. At one point CurveGlobal was a serious threat to ICE in European interest rates. Why didn't it succeed?
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CurveGlobal's pitch was simple: A partnership with LCH would help customers save on capital costs, aggressive fees were lower than competitors, and a market with multiple healthy competing venues was good for everyone. Market share slowly began to grow.pic.twitter.com/v2sCyhNyAh
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By the end of 2017 CurveGlobal boasted ~150K lots of monthly volume & open interest - not a huge threat to ICE with 30M lots traded per month, but a solid start. CG pushed its cost saving pitch hard among institutional customers trading interest rate swaps. Share kept building.pic.twitter.com/D24xPtUdLP
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Being an underdog exchange is tough. You'l likely be running a loss-making venture for the majority of your life, only flipping to profitable when total victory has been achieved. Backed by LSE's deep war chest, CG kept losing money & pushing forward.
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Fast forward to mid-2020 and traction is slipping. Brexit is complicating CG's strategy, its key products are based on a fading LIBOR benchmark, and terminal velocity hasn't yet been reached. COVID liquidity shocks certainly don't help either.pic.twitter.com/LiTbEmG3g2
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Surprisingly, by the end of the year CG sees new record high volumes & improving OI. LIBOR confusion mixed with the launch of SONIA futures likely helped re-ignite CG's value proposition. If CurveGlobal saw signs of progress in early 2021, why shut it down?pic.twitter.com/FCMCeubRGv
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The reasoning isn't all that surprising, if you know a bit of history. Think back to my piece on failed exchange star T.O.M, a startup in a similar place to CG in European options trading.https://frontmonth.substack.com/p/how-exchanges-die-the-story-of-tom …
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T.O.M had strong bank & exchange backers, aggressive fees & deep pockets. At one point it had 40% market share in Dutch options & a tech deal with Nasdaq. Why did it fail? It ran out of money, had no vision, & backers lost faith. I think the same thing happened to CG.
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Since CG's launch LSE has changed the C-Suite and pulled off a major deal with Refinitiv. It needs money to integrate these businesses, not fund a long-loss-making venture like CG. If 5 years isn't enough time to win, how long is?
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The life & death of CG should teach us some lessons: 1) it really is close to impossible to disrupt European derivative trading. Many have tried, nearly all have failed. 2) M&A beats organic growth when entering a new market. 3) Long term vision is extremely important.
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CBOE, I'm looking at you! I would love it if an underdog exchange were to finally challenge the incumbent European exchanges. I'm waiting to believe it when I see it. I don't think CBOE Europe will work, and am avoiding the stock.
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If you liked this case study, maybe sign up for my market structure newsletter? You don't have to, but I'll be sad...https://frontmonth.substack.com/
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