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The German and Swiss exchanges Deutsche Börse and SWX announced late last week that they would combine their warrant and certificate trading activities to create a new securities exchange organization, with a plan to develop a new common electronic platform.

The two exchanges signed a letter of intent, which will see the creation of a co-owned holding company located in Zurich. The exchange is expected to start operating in the fourth quarter of 2007.

The new company, which is still unnamed, will operate in Switzerland and in Germany, and will take on the two exchanges' business in securitized derivatives. Trading in Switzerland will remain under the sovereignty of Switzerland, and likewise for Germany, reads a prepared statement released by the two exchanges. SWX will spin off its business in warrants and certificates into a new Swiss-based exchange in January 2007. At the same time, the joint venture will create a new exchange in Germany, under the responsibility of the Bremen Stock Exchange, which was acquired by SWX in 2005.

While trading in Germany and Switzerland will first be conducted on separate systems, at the end of 2009 a new common electronic platform will be unveiled.

Both the Deutsche Börse and the SWX will own an equal financial interest in the joint venture. A definite contract is expected to be signed before the end of 2006.

Deutsche Börse and SWX are already collaborating on Eurex, a futures and options exchange set up in 1996. They are also partners in the European provider of security market indices, Stoxx, a venture that includes Dow Jones. Stoxx oversees the development, maintenance, distribution and marketing of the Dow Jones Stoxx indices, an index family that is rules-based, transparent and free-float weighted.

Deutsche Börse saw its sales revenue rise by 16 percent over the first quarter of this year compared to the same period in 2005, rising to €464.7 million ($591.8 million). SWX finished its 2005 financial year with a net profit of CHF 89.2 million ($72.8 million), representing a 59 percent increase over the previous year.

The German exchange is currently investigating a merger with the pan-European exchange operator, Euronext.

Deutsche Börse and SWX officials did not return calls by press time.

Omgeo will link its Omgeo Connect product to the Depository Trust and Clearing Corp.'s Deriv/Serv so that multi-asset class securities firms can have a single point of access for derivatives, fixed income, equities and other markets, according to Omgeo officials.

Omgeo Connect is targeting broker/dealers as well as buy-side concerns while Deriv/Serv automates the matching and confirmation of over-the-counter (OTC) derivatives products. Linking Connect and Deriv/Serv will enable access to all the products.

"Omgeo offers matching capabilities in equity and fixed income, but as trading strategies broaden, the pain points today are really in the derivatives space," says Steve Matthews. He is managing director of product and business development for Omgeo.

The new interface is XML-based. Omgeo Connect will use this XML message specification to capture data relevant to OTC derivatives, transform that data into industry FpML messages and route them to DTCC Deriv/Serv via an MQ interface, which allows the exchange of information within a system. After matching, Connect will receive status messages from Deriv/Serv, transform the messages and pass them back to customers via the Connect interface.

"The key is that all their traffic [flows] through a single pipe," Matthews says. "We manage the complexity of them, so you get all the benefits of access to multiple solutions, but you only connect once,"he says.

The new offering will build a message specification into the Connect product. There is "some work required" in order to do that, Matthews says. Omgeo has been working with approximately three, unnamed early adopter clients on a pilot project, but it is available to the general public as of Friday, May 5.

The key strategy for Omgeo is to get to market quickly, Matthews says. "In the derivatives marketplace right now, there's a lot of pressure in the post-trade community,"Matthews says.

In terms of a time frame, Omgeo "brought it together quite quickly," Matthews says. Omgeo started talking to Deriv/Serv about nine months ago, and began building the actual interface about four or five months ago, he says.

In March, Omgeo announced that its standing settlement instruction (SSI) product, Omgeo Alert, is now available online for broker/dealers. The Web-based version of Alert has the same functionality as the existing product and does not require any installation. It is intended to allow easier access to SSI data, encouraging ongoing maintenance of the data and improving the quality of settlement instructions, according to Omgeo (DWT, March 27). A February upgrade offers securities firms more support for complex fixed-income instruments, say officials of the trade processing services vendor (DWT, Feb. 20).