NYX Nyse Euronext

The head of NYSE Euronext (NYX) said he expects to know by January whether his company's ambitious plan to take on U.S. futures kingpin CME Group Inc. (CME) is a success or destined for the scrap-heap of previous attempts.

Chief Executive Duncan Niederauer said daily trading volume of "a few hundred thousand contracts" and a similar level of open interest is needed for the NYSE Liffe US venture to be taken seriously.

NYSE Euronext plans to launch interest-rate futures in the third quarter, the latest challenger to the near-monopoly that CME has successfully defended against domestic and overseas rivals.

"The environment is different, and the desire for competition is more tangible," said Niderauer in an interview with Dow Jones Newswires.

It is a critical year for NYSE Liffe US, which was launched in September 2008 with products acquired from CME and expanded with stock-index contracts.

Underlying the exchange is a new clearinghouse geared to handle rate futures alongside trades in cash Treasurys. It's led by Walter Lukken, until last year the acting chairman of the Commodity Futures Trading Commission.

The venture is supported by some of the biggest names in trading, including Morgan Stanley (MS), Goldman Sachs Group Inc. (GS) and Citadel Investment Group, all keen to see competition ramped up in a market where CME remains home to about 90% of domestic futures trade.

"We genuinely believe the combination of products, partners and clearing we have is more innovative than anything that's been tried before," said Niederauer, who is overseeing NYSE Euronext's derivatives effort and who tapped former Merrill Lynch executive Thomas Callahan in 2008 to head up NYSE Liffe US.

But even for NYSE Euronext, parent of the New York Stock Exchange and operator of the world's third-largest futures exchange by volume via its Europe-focused NYSE Liffe arm, breaking into U.S. futures trade is a tall order.

Prior sieges of CME's rate-futures fortress--by bank consortiums, Frankfurt-based Deutsche Boerse AG (DBOEF, DB1.XE) and Liffe itself--roundly failed as traders proved unwilling to step away from the price discovery offered by deep and liquid Chicago markets, even for cheaper trading fees.

ELX Futures, an electronic platform developed by a group of banks, trading firms and technology providers, represents the most recent attempt, taking about 3% of the market in Treasury futures since its debut last July. ELX is also developing Eurodollar and federal-funds futures, both central to CME's rate-futures complex.

CME's official position has been to welcome competition, while noting that cutting into the 159-year-old exchange company's established customer base is a tough job for anyone.

"Liquidity is king," said Robin Ross, managing director of interest-rate products for CME. "At the end of the day, you need a diverse, healthy set of users that create those deep, liquid pools of open interest, and it's hard to build that."

CME last month saw an average of nearly five million interest-rate futures contracts change hands per day in March, as the market continues to rebound from the depths of the financial crisis.

Niederauer said there is a real possibility that the NYSE Liffe US venture could fail, but the downside is limited. Besides an equity investment in the clearing venture, NYSE Euronext has repurposed existing technology for NYSE Liffe US, and Niederauer said the effort has "instilled innovation" into the company's culture.

"It's not so much about what's at stake as what's possible," Niederauer said.

-By Jacob Bunge, Dow Jones Newswires; 312-750-4117; jacob.bunge@dowjones.com

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