08/20/2012 02:00 EDT | Updated 10/20/2012 05:12 EDT

CME Group applies to UK regulators for permission to create London-based derivatives exchange

CHICAGO - The largest U.S. futures exchange operator, CME Group Inc., is setting its sights overseas.

The Chicago-based company said Monday it is in the process of applying with United Kingdom regulators to create a London-based derivatives exchange that will initially start trading foreign exchange futures products.

If approved, CME Europe Ltd. is expected to launch mid-2013.

Already, more than 20 per cent of CME Group Inc.'s business volume comes from Europe. Having an exchange in London will allow the company to better align itself with customers there, according to CME's executive chairman and president Terry Duffy.

The CME Group runs futures exchanges where investors can trade on agricultural commodities, energy, metals and other investments. It was formed from the 2007 merger of two of Chicago's largest futures exchanges, the Chicago Mercantile Exchange and the Chicago Board of Trade.

The new exchange will challenge more established European futures exchanges Liffe and Eurex, which are operated by NYSE Euronext and Deutsche Boerse, respectively.

CME's move is the latest in the world of financial markets, which has undergone a profound transformation in the past decade. Today, the value of outstanding derivatives contracts has surpassed by many times the value of traditional financial products like stocks and bonds.

A push from regulators across the globe to move more derivative trades onto exchanges and make the markets more transparent has opened even bigger opportunities for established players.

Germany's Deutsche Boerse and New York's NYSE Euronext have both built highly profitable businesses out of this trend and today own Europe's biggest derivatives exchanges. The two even tried to merge their operations and create the world's largest exchange operator. But in February, the European Commission blocked Deutsche Boerse's $10 billion bid to merge with NYSE Euronext. Both of them now compete with each other in Europe and in the future with new entrants like CME.

CME Group shares slipped 10 cents to $54.01 in afternoon trading.