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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.
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
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
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 …
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.
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?
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.
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.
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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