It’s all starting. With the kick-off of swap execution facilities this month in the US, the visible finish line for the regulation marathon, exchanges and firms are now gearing up for the next phase for the derivatives markets – innovation.

Innovation is a term tossed around loosely, but with new structures, new methodolgies and new constraints on the market, innovation is going to be the key to profitability for exchanges and firms. So it was interesting to see yesterday’s announcement that Deutsche Borse was taking a minority stake in the the Global Markets Exchange (GMEX), in London. GMEX seems to have a wide lens, but for in my talks with them in recent months, they are most interested in the $600 trillion interest rate swaps market. As the Reuters story “Deutsche Boerse buys minority stake in London’s GMEX” points out, it is working on the rollout of a new interest rate contract that will use less margin than other swaps.

In the wake of Basel III capital requirements, this is the type of innovation that firms are searching for. Whether it will be a success is anyone’s guess, but Deutsche Borse may just be the partner it needs, with its trading platform, distribution network and clearinghouse.

Let’s spread a little innovation.

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