Nasdaq OMX Group Inc. is betting equity derivatives will drive profit in Europe as greater transparency draws in more investors, according to its derivatives chief in the Nordic region.
“We will see more competition in derivatives and we want to be an active player in that,” Lauri Rosendahl, who is also the president of the Helsinki stock exchange, said in an interview at his office yesterday. “We have a very successful and pretty sizeable operation in the Nordic markets for equity derivative trading and clearing and we think that we can scale that and the expertise and experience further and grow that business in Europe.”
Nasdaq OMX, the second-largest U.S. equity market operator, is making a push on derivatives, which accounted for 17 percent of its second-quarter $451 million net revenue, including debt and energy instruments.
In May, Nasdaq OMX started the NLX futures exchange based in London, which offers short-term and long-term interest-rate derivatives. Nasdaq OMX bought a 25 percent stake last year in the Dutch cash equity and equity derivatives trading venue The Order Machine, or TOM. It has an option to acquire a further 25.1 percent. The other owners are BinckBank NV, Optiver BV, IMC Group and ABN AMRO Bank NV.
“With the TOM concept, and the way TOM operates now, we would definitely look at geographic expansion,” said Rosendahl, who also oversees TOM. “TOM is our bridge to Europe from the Nordic region on the equity-derivatives front.”
Nasdaq OMX is the third-biggest equity derivatives exchange in Europe after Eurex, owned by Deutsche Boerse AG, and Liffe, which is owned by NYSE Euronext. More than 53 million stock index options and futures contracts were traded on Nasdaq through July, compared with about 648 million for Eurex and 236 million for Liffe, data compiled by Nasdaq show.
“We think we can be a challenger in these markets and we can be a player that brings competition in this area, where we haven’t actually seen that much competition compared to what we’ve seen on the cash equity trading and clearing side,” Rosendahl said. “NLX and TOM are solid evidence that we don’t only talk about it, that we actually do something as well.”
In the Nordic and Baltic regions, the average daily volume of options, futures and fixed-income contracts traded in the second quarter rose an annual 1.7 percent to 438,418, it said on July 24. Its market share in equity trading in the region rose to 69.7 percent from 67.8 percent with about $4.4 billion in stock traded daily.
“We definitely have room to grow in the Nordic region,” Rosendahl said. “But that means we have to grow the pie.”
Educating institutional investors to use more derivatives in active asset management can help develop the market and grow it, he said. Nasdaq OMX arranges educational seminars and is developing a multimedia e-learning course that will roll out this year. Growth in Europe can also come from deals.
“Acquisitions are a possibility in the longer term as it has been in the past,” Rosendahl said. “Our company has been active in acquisitions and we have a long track record of successful acquisitions.”
Rosendahl manages a derivatives team of about 40 people, half of whom work in product development.
“The derivative business for us is a healthy, profitable business,” Rosendahl said. “We believe we can organically and profitably grow that business and also grow our presence in Europe.”