(Bloomberg) -- A new European fear gauge is on the drawing board.
CBOE Holdings Inc.'s VIX is already the flagship product for betting on price swings in the U.S. stock market. Now, armed with a big European stock exchange picked up when it acquired Bats Global Markets Inc. this year, the Chicago-based market operator thinks it can eventually expand the VIX franchise.
“A European VIX is the sort of product we're actively exploring,” Mark Hemsley, chief executive officer of Bats Europe and president of Europe for CBOE said in an interview in London. “We're putting the bedrock down first.”
A new European fear gauge is a long-term project, but it signals the combined companies' ambition and strategy. Bats Europe operates the biggest pan-European stock exchange, which provides a foothold to potentially expand in options, futures, exchange-traded funds and indexes -- lines of business that are more lucrative these days than running just a stock market.
Bats already had its sights on indexes and started trying to muscle into the European market in June, before CBOE completed its purchase of the company on Feb. 28. It started U.K. gauges that compete with the FTSE, and more recently unveiled a product that could be used to monitor Brexit fallout.
Executives told investors last year that they should keep an eye on the companies' European plans. Chris Concannon, who was the CEO of Bats before becoming president and chief operating officer at CBOE, said Europe is “the one opportunity that most people watching this transaction will under-appreciate.”
CBOE only had two employees in Europe before the deal with Bats, and now the combined companies have a staff of 79 in London near the River Thames. Right now, the company is developing stock indexes in the markets it operates in as part of a wider strategy to sell data and trading products.
“One of the main things in Europe is connecting the legacy CBOE sales team to a wide range of Bats Europe sales contacts,” Hemsley said.
Even if it's off in the distance, some see a European VIX as inevitable.
“Launching a European VIX contract is a no-brainer for CBOE,” said Rich Repetto, an analyst at Sandler O'Neill & Partners LP. “It's very difficult to disrupt an entrenched competitor, but if anyone has the branded products and distribution, it would be the CBOE post-merger.”
If CBOE follows through on the idea, it will face the entrenched competitor: the VStoxx Index, a volatility gauge operated by Deutsche Boerse AG. Trading of VStoxx contracts has reached record levels recently as investors use them to hedge European elections, for example. Still, trading in the VIX dwarfs that of the European gauge -- an average of about 670,000 puts and calls tied to the VIX have changed hands in March, compared with about 54,000 for the VStoxx.
--With assistance from Cecile Vannucci and Brian Louis
To contact the reporter on this story: John Detrixhe in London at jdetrixhe1@bloomberg.net.
To contact the editors responsible for this story: Trista Kelley at tkelley2@bloomberg.net, Nick Baker
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