The three large international exchanges fighting for the upper hand in the growing euro-short term rates (ESTR) futures market have flexed their muscles.

Speaking on a panel at the FOW Trading Amsterdam conference last week, Intercontinental Exchange, Eurex and CME Group discussed the evolving European rates market introduced by Uri Peles, managing partner at Barak Capital, a market-maker in short-term interest rate futures.

Peles told the conference: “ICE has the history of Euribor and they dominate the Euribor market. They have a multi-currency offering so they are in a very good spot to defend their market. Eurex is the European venue and it is the regulators’ choice if the regulators want to force clients to trade on a European venue. They have been waiting many years for this opportunity to compete and we have seen previous efforts which have not been successful but now it’s a different game.”

Peles continued: “CME is a giant exchange in the US and they were first with ESTR where they have build a nice market. For them to compete and be relevant for clients that have European interests, it is important.”

ICE, Eurex and CME all offer rival ESTR futures contracts in a market that has seen ICE emerge in recent weeks as the top venue for trading volume and open interest though Mark Rogerson, the executive director and EMEA head of interest rate products at CME Group, argued volumes are not the same as liquidity.

“Volumes and open interest are a good way of demonstrating you have liquidity in a mature market but I’m not sure it’s a good way of describing liquid in a young and growing market because there are quite a lot of illusory effects.”

Rogerson added: “Liquidity is not lots of butterflies and spreads trading in the greens, that’s just volume so we try to avoid being deceived by those illusory effects of spreads trading at the back end of the curve.”

Stelios Tselikas, the head of interest rate derivatives at ICE, said the US group has an advantage over its rivals as the incumbent in European short-term rates with its vast Euribor market, based on the legacy European lending rate which ESTR is designed to replace.

Tselikas told the conference: “In terms of what it takes to build a market, I have a single word answer: integrity. You’re trying to get a buy-side client to come and choose which venue they are going to trade on, so the reliability of execution is key. Volume is not liquidity, I agree with that. It takes a long time to build that integrity through technology and risk management and other things.”

In response to the question from the panel’s moderator Steven Hamilton “What is required to build a successful market?”, Lee Bartholomew, Eurex’s global head of Fixed Income & Currencies Product Research and Development, said: “You need integrity and you need consistency. You need to listen to what the participants tell you, you need a diversity of the ecosystem so you needs banks, asset managers, the pension funds, the hedge funds and the market-makers, and you need that from inception.”

Eurex is pushing its ESTR futures contract hard alongside its relaunched Euribor futures offering in a broader short-term interest rates push timed to coincide with the European regulatory initiative to force more European rates trading into Europe and away from markets outside Europe, namely ICE.

Bartholomew added: “You also need to stick to the game-plan. It might be a short-term interest rate but you need a long-term plan. By doing that and being dynamic, you will build the market up over time.”

Peles added a conciliatory note when he said the real rivalry is not between the exchanges but between the exchanges on one side and the far-larger ESTR over-the-counter (OTC) swaps market on the other.

“The real competitor is the OTC market, most of the flow is OTC, so my view of European rates is how futures compete with the OTC market and how the exchanges can offer transparency in listed futures and options.”

Peles added: “This time is different, there are three giant exchanges that will remain even after this episode, so it’s going to be interesting.”

The panel went on to discuss if the risk-free rate ESTR will ultimately replace the legacy Euribor rate, which would replicate moves in the US and UK where the old, Libor-based rates have been outlawed by regulators in favour of risk-free rates SONIA and SOFR.

Bartholomew said: “Europe is different to the UK in the sense that the market appears comfortable with both rates co-existing. I don’t think we have the regulatory push to have the cessation of Euribor. Volumes are picking up in ESTR but structurally Europe has been different compared to the US and UK.”

He added: “Europe we feel is a big opportunity or we wouldn’t be going into that space. ESTR is developing nicely which probably puts pressure on the regulators to go down the same route as the UK and US but at the moment the market feels comfortable that the two rates co-exist.”

Hamilton, a consultant to the London Metal Exchange, an independent direct at market-maker Tower Research Capital Europe and the former global head of financial derivatives at ICE, agreed, concluding: “Without a regulatory mandate, the two rates exist. If the mandate comes, then we go the same way as we did with SONIA and SOFR.”