Howard Lutnick Takes Aim at CME’s Dominant U.S. Rates Market

(Bloomberg) — Howard Lutnick shook up Treasuries trading in the 1990s, and now he wants to take another crack at it, this time in the market for futures linked to U.S. government debt.

The billionaire, speaking on BGC Partners Inc.’s earnings conference call Wednesday, said he plans to create a futures exchange to take on CME Group Inc.’s dominant franchise for interest-rate derivatives. Lutnick is chairman and chief executive officer of BGC, a broker affiliated with Cantor Fitzgerald LP.

Lutnick launched eSpeed in 1996, helping fuel an electronic trading revolution in Treasuries. Nasdaq Inc. bought the business in 2013, but after his non-compete expired, Lutnick created a new market for trading Treasuries, called Fenics. So far, it’s only been a venue for the bonds themselves, not the futures contracts that account for a huge chunk of the industry’s trading.

“We have been talking to our customers and clients and we think we’ve gotten a great reception and are very excited about the opportunity to create a competitor to the Chicago Mercantile Exchange’s monopoly in rates futures,” he said.

“We will have broad support from those players,” he added. “In what forms and exactly how, I look forward to updating you next quarter.”

CME declined to comment.

Lutnick is already a rival of CME, which owns BrokerTec, one of the largest venues for trading Treasury securities. Bloomberg LP, the parent of Bloomberg News, also competes in this market.

Lutnick faces long odds, based on history — including his own. Once an exchange gets momentum in a particular futures market, it’s been difficult to dislodge.

Eurex, a major derivatives exchange in Europe, started a U.S. market in 2004 but never got traction and closed it in 2008. ELX Futures LP — created by Wall Street giants including Lutnick, JPMorgan Chase & Co. and Citigroup Inc. — began offering Treasury futures more than a decade ago, but failed to put a dent in CME’s rates business.

(Adds CME declining to comment in 6th paragraph, ELX in final paragraph)

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