Benefits of Deutsche Börse deal with LSE challenged by Derivatives investors

The prospective $20bn agreement would see the creation of a financial Leviathan capable of trading in index and data analytics, benchmarks, equities and futures. 

The post-trade domain is set to undergo change as a result of the deal, with a combination presenting the possibility of clearing collateral management on an unprecedented scale. 

Certain commentators speculate that the move is a signature of a rapidly changing global market scene, hit by capital rules on banks and the flourishing of ETFs (exchange traded funds).

In the Financial Times online, Anthony Perrotta, a former broker and head of research at Tabb Group, the US capital markets consultancy, is reported to consider capital rules as "the single biggest issue" impacting upon OTC markets.

"I think exchanges are recognising the need for expanding their roles as intermediaries by utilising scale and services to connect asset owners", he said.

It is anticipated that the partnership will nurture exchange efficiency - worth an estimated €450m - over the next three years, but there's less certainty over the extent to which markets will feel an improvement. 

Xavier Rolet, chief executive of the LSE said recently that a combined company would set a future precedent, as it caters to customers who trade globally, such as BlackRock and Pimco. Mr Rolet maintained that the settlement assets would provide collateral management as soon as the market closes. 

However, fears exist for futures markets traders that the combination may force fees up, a point recognised by Mr Rolet:

"Our American futures friends have kept on increasing fees every year - in 2009, 2010, when everybody was on their back bleeding to death. Total cost of trading is too high, so it's going to change", he said. 

However the constant need to margin to offset risk in clearing within derivatives has placed question marks over the ability of exchanges to offer savings benefits to traders.

Banks and investors are being promised billions in savings from costs associated with trading in OTC markets, as soon as fresh rules from Basel kick in. 

New regulation means banks trading in derivatives most post enormous collateral and margin at central clearing houses to underwrite deals. Investment banks are also feeling the body blow of the capital charges attached to those deals.