Nasdaq U.K. derivatives system seeks 10% market share

October 11, 2012 06:12 PM
CME Group also wants a piece of the pie...

Nasdaq OMX Group Inc., which is setting up a derivatives trading system in London to compete with Europe’s two biggest futures exchanges, will seek more than 10 percent market share in its first year of operation.

“Success is at least 10 percent,” Nasdaq Chief Executive Officer Robert Greifeld said in an interview in London yesterday. “We don’t have an interest in being a 3 percent or 5 percent market player. We want to come in a meaningful way.”

The market for derivatives is growing as European and U.S. regulators push over-the-counter transactions onto exchanges. The second-largest U.S. equity exchange announced plans for the U.K. platform, known as NLX, in June, four months after the European Union blocked Deutsche Boerse AG’s takeover of NYSE Euronext amid concern the merger would stifle competition in derivatives and clearing.

Deutsche Boerse and NYSE Euronext own Europe’s largest derivatives exchanges. NYSE Euronext’s London-based Liffe dominates the market for short-term interest-rate derivatives and Frankfurt-based Eurex, Europe’s largest futures exchange, handles long-term products. CME Group Inc. also plans to open a market for currency futures in London next year.

NLX, led by Charlotte Crosswell, will set up its interest- rate derivatives system with six products, including futures on the German bund, Euribor futures and short sterling. It will also offer medium-term German government debt known as Bobl, so- called Schatz short-term German debt, and a U.K. government bond. Nasdaq will start the trading platform in the first quarter of 2013.

‘Superior Technology’

“We will come with superior technology, in close alignment with the customers,” Greifeld said. “The market, post the rejection of NYSE-Deutsche Boerse is quite receptive to a competitive dynamic.”

NYSE Euronext is spending $85 million moving clearing for London derivatives trades to its own clearinghouse by the summer of 2013, forming a so-called vertical silo. Deutsche Boerse already routes all transactions through its own post-trade systems. By contrast, NLX will use LCH.Clearnet Group Ltd., the largest clearinghouse for interest-rate swaps, for clearing and settlement services.

“I have yet to meet a customer who believes the vertical silo is a good thing, we are espousing the horizontal model,” Greifeld said. “We’ll be there using LCH as a clearer, with strong technology, just as NYSE are forcing their customers through the conversion.”

Nasdaq has a 3.7 percent stake in LCH.Clearnet, which is selling a majority stake to London Stock Exchange Group Plc.

LSE Bids

Greifeld, who has tried twice to buy LSE and made a failed hostile bid for New York-based NYSE Euronext last year, said he isn’t currently close to a large acquisition.

“We look at acquisitions on a regular basis and the stars have to align perfectly,” he said. “Transactions are difficult things. The reasons to do them have to be compelling. We look at close to a 100 transactions a year and we pull the trigger on two or three.”

Nasdaq shares have fallen 4.1 percent this year as of 1:48 p.m. New York time yesterday. The New York-based exchange generated criticism from its member firms in May for failing to stop trading in Facebook Inc. after computer systems used to set the opening price in the social network’s initial public offering were overwhelmed by order cancellations and updates. The company has set up a $62 million compensation plan for brokers that lost money on the IPO.

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