Deutsche Börse AG and the SWX Group are teaming up to create a European exchange for securitized derivatives.

The two firms intend to combine their warrant and certificate trading activities in a jointly operated exchange. The new venture, owned through a holding company in Zurich, will operate nationally regulated exchanges in both Switzerland and Germany.

SWX will spin off its business in warrants and certificates into a new Swiss-based exchange, which will commence operation on Jan. 1, 2007. In parallel, the holding company will found an exchange in Germany under the mantle of the Bremen Stock Exchange, which SWX acquired in 2005. This new exchange is scheduled to open in the fourth quarter of 2007.

Technologically, trading on these exchanges will initially be conducted on separate trading systems and then be transferred by the end of 2009 to a common electronic platform. The Swiss-based exchange will remain under the sovereignty of Switzerland, while trading in Germany will be conducted under German supervision and with two different market models (fully automated and using specialists).

“As a result, various investor groups can be afforded the market model that is the most efficient for their purpose: while fully automated trading fulfils the highest requirements for market transparency, minimized lag times and high-frequency trading, the specialist-based approach will continue to ensure the best execution prices for a wide product portfolio,” the firms say.

The collaborative undertaking is to commence activities in early 2007. Both partners will own an equal financial interest in the holding company and contribute their respective business activities. The firms say that because the new venture can rely on two strong pre-existing markets, it will be profitable right away. Revenues earned by Deutsche Börse from certificate and warrant trading on the Frankfurt Exchange will be passed through to the joint venture. Deutsche Börse and SWX intend to have the concrete details worked out by the fall of 2006.

With this new venture, Deutsche Börse and SWX will be expanding their existing cooperative efforts, which include the world’s largest futures and options exchange, Eurex, as well as the European provider of security market indices, STOXX.

Also today, SWX Group reported record results for the 2005 financial year. It posted a net profit of CHF89.2 million, representing a 59 % increase over the previous year.