Nasdaq OMX Group Inc. (NDAQ) will set up its interest-rate derivatives NLX trading platform in London with six products including the German bund and Euribor, in direct competition with the two biggest exchanges in the region.
The New York-based company will start NLX trading with futures based on short sterling, Charlotte Crosswell, chief executive officer of the new system, said today in an interview in Interlaken, Switzerland. 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 at the same time. Nasdaq will start the trading platform in the first quarter of 2013, she said.
“We are focused on creating competition with incumbent large exchanges,” Crosswell said at the SFOA’s annual conference for derivatives exchanges and regulators. “We are going live with lookalike contracts. When you look at new products you never know, so we will launch with the six and potentially one or two new products.”
Competition for derivatives trading is intensifying as exchanges and alternative systems seek to benefit from new European and U.S. regulations that will push more over-the-counter derivatives into electronic trading. NLX, backed by the second-largest U.S. equity exchange, joins as many as five other new entrants who have gone public months after the European Union blocked a merger between Deutsche Boerse AG (DB1) and NYSE Euronext, saying it stifled competition.
CME Group Inc. (CME), which also plans to open a derivatives market in London next year for currency futures, yesterday said it will consider interest-rate products and options after the platform has started to operate. CME will focus on new products.
Nasdaq in June said it will start the London venue as a multilateral-trading facility and offer a range of short-term and long-term interest-rate derivatives. The exchange will subsequently add options, Crosswell said.
NLX will use LCH.Clearnet Group Ltd., the largest clearinghouse for interest-rate swaps, for clearing and settlement services.
“To gain critical mass we need a couple of market makers per contract and a core group of customers there to support them,” she said. “So far our target has been the top 20 banks and market makers and we are now expanding that down the chain. LCH enables us to gain support more quickly because of the existing clearing membership that participants have with LCH.”
The new London market will compete with NYSE Euronext’s Liffe and Deutsche Boerse’s Eurex, the largest derivatives venues in Europe. Liffe offers gilts, short-sterling and Euribor futures, while Frankfurt-based Eurex has contracts on German and French bonds. The European Commission blocked the two from merging in February, saying the combination would stifle competition in derivatives.
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