By Michelle Price
Nasdaq OMX Group Inc. (NDAQ) said Thursday it plans to launch a
new London-based interest-rate derivatives platform, making it the
latest exchange to attempt to break into the tight-knit European
derivatives market.
The U.S.-headquartered exchange operator said it plans to bring
competition to the European derivatives market--which is dominated
by NYSE Euronext's (NYX) Liffe and Deutsche Boerse AG's (DB1.XE,
DBOEF, DB9.XE) Eurex--through a new derivatives platform named
Nasdaq OMX NLX.
The platform will offer a range of European short-term and
long-term listed interest rate euro and sterling-based listed
derivatives products and "highly competitive execution and clearing
fees," the exchange said. Nasdaq OMX hopes to launch the new
venture, which will operate under the multilateral trading facility
license, by the first quarter of 2013, pending regulatory
approval.
NLX will clear through LCH.Clearnet Group Ltd. (LCHC.YY), the
Anglo-French clearing house currently being acquired by the London
Stock Exchange Group PLC (LSE.LN).
This will let the exchange offer users greater collateral
efficiency by allowing them to cross-margin products traded on NLX
with products traded on other platforms that also clear through
LCH.Clearnet. Cross-margining allows users to ultimately post less
collateral.
Breaking into the European derivatives market--which many
market-watchers claim is effectively a duopoly--is a notoriously
difficult task. Other new derivatives platforms, such as the London
Stock Exchange's Turquoise Derivatives ventures, have struggled to
gain traction.
However, Charlotte Crosswell, chief executive of NLX, told
Financial News that the platform's post-trade arrangement should
make it competitive. She said: "Trading both long and short dated
interest rate derivatives on one platform is attractive for users,
but the key thing is being able to clear and store those trades in
one place. This is what differentiates NLX."
Trading of European short-term interest rate derivatives is
dominated by Liffe, while Eurex has cornered the market for
long-term European contracts. NLX aims to bring together trading of
both ends of the yield curve on a single platform, which could also
make it attractive to investors and hedgers looking to offset risk
in both long and short-term debt securities.
According to two sources familiar with the creation of the
Nasdaq OMX platform, the exchange had hoped to persuade the large
derivatives dealers to take stakes in the new venture, which would
ensure it received the flow necessary to get it off the ground. But
the exchange struggled to get the cash-strapped banks to buy in,
according to the sources.
However, Crosswell said this morning that the venture had
received strong interest from the industry: "Market participants
have been very interested in the proposal and we are ready to
on-board customers and available for member-testing. We are also in
technical discussions with some of the market participants."
Will Rhode, a principal and director of fixed income research at
Tabb Group, said the NLX clearing model could also make the venture
attractive to buy side firms who are battling new collateral
charges under new European regulations.
He said: "The buy-side are looking for solutions that can help
alleviate the collateral burden resulting from financial market
reform and they will welcome this initiative by Nasdaq OMX."
Write to michelle.price@dowjones.com