For exchanges that historically stuck to stocks and futurescontracts, the hottest new bet is challenging banks' dominance incurrency trading.

Deutsche Boerse AG, which runs the Eurex futures exchange andXetra stock market, joined the battle on Sunday with the 725million euro (US$793 million) purchase of currency market 360T. Itsdecision came six months after Bats Global Markets Inc., a stocksand options specialist, waded into the business by spending $365million on Hotspot FX.

Banks have long served as the backbone of currency trading, butthat could be changing following a rigging scandal and as exchangesseek new growth engines. Foreign exchange is a huge territory;roughly $5.3 trillion trades every day.

“I understand the rationale for 360T,” said Peter Lenardos, ananalyst at RBC Capital Markets in London. “The foreign-exchangemarkets are the largest and most liquid in the world.”

Deutsche Boerse and Bats both have their roots in stock trading.Stock exchanges in the U.S. and Europe have generally seen profitseroded by regulations that have spurred competition. Nasdaq OMXGroup Inc., a stock market, was among the final bidders for bothHotspot FX and 360T, according to people familiar with the matter.Bloomberg LP, the parent of this news organization, also operatesin stocks and currencies.

CME Group Inc. was also said to be in the running for 360T. TheChicago-based derivatives exchange handles about 10 percent ofelectronic currency trading, according to Aite Group LLC.

Deutsche Boerse and Bats have recently hired chief executiveofficers who want to aggressively diversify into currencies.

Under CEO Carsten Kengeter, Deutsche Boerse also took fullcontrol of index companies Stoxx AG and Indexium AG for 650 millionSwiss francs ($680 million). The diversification into indexbusinesses mirrors similar moves at London Stock Exchange Group Plcand Intercontinental Exchange Inc.

“He indicated at investor day that he wanted to be acquisitive,and he's following through,” Lenardos said. Kengeter took the jobin June following a career at UBS Group AG and Goldman Sachs GroupInc.

The deal for 360T will be financed through a combination of debtand equity. The transaction is expected to immediately increase itsearnings per share. Kengeter is “buying at peak multiples,”Lenardos said.

Currency Market Share

360T had average daily volume of $70 billion in 2014 and $62billion the year before, according to an Aite Group report fromMay. Hotspot's average daily volume in last year's fourth quarterwas $31.6 billion. ICAP Plc's currency market had average dailyvolume of $105.3 billion in the 12 months through June.

There's another currency market that might be available: FXCMInc., the broker that nearly went under because of the Swiss franc's massively volatile day on Jan. 15, said in Marchthat it's trying to sell its stake in FastMatch.

It remains to be seen how Deutsche Boerse will seek to grow360T's market share. A few months after buying Hotspot, Bats CEOChris Concannon said he was starting a price war in some tradingpairs.

The currency market has been under scrutiny following nearlyfive years of turmoil as some of the biggest dealers paid $5.8billion in fines from charges that they had rigged the market.

Buying and selling currencies commonly takes place between abank and its customer through over-the-counter trading. The bigdealers will quote different prices depending on their relationshipwith the customer. They will also tweak prices according to thecredit quality or sophistication of the client seeking totrade.

Banks were again buffeted in January when the Swiss NationalBank shocked global markets by abandoning its price cap on thefranc. Some dealers sought to reduce their losses by trying torenege on transactions, a move that wasn't lost on market operatorswho saw it as an opportunity to grow market share.

–With assistance from Rainer Buergin in Berlin.

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