Nasdaq OMX Group Inc., the exchange operator whose biggest U.S. competitor is getting purchased by a derivatives market, is trying to draw individual investors into currency futures with a series of new offerings.
The company, best known for U.S. equity trading, has designed six contracts that pair the U.S. dollar with the Australian dollar, British pound, Canadian dollar, euro, Japanese yen and Swiss franc. The contract size will be $10,000, low enough that New York-based Nasdaq hopes they will appeal to investors who might not otherwise buy such products.
The contracts are the first in a number of futures products that Nasdaq hopes to introduce, according to Dan Carrigan, the Philadelphia-based president of Nasdaq OMX Futures Exchange. Nasdaq, which got its start in U.S. stocks, has diversified by expanding into European equities and this year buying the ESpeed platform for trading U.S. Treasuries.
“Our vision is to bring to market an FX product that makes sense to retail investors,” Carrigan said by phone. “Our goal is to plant a flag in the futures industry, and this is the first set of products that gets us on that radar screen.”
The contracts will be priced in $1 increments. They will also be settled in U.S. dollars and cleared by Chicago-based Options Clearing Corp. The contracts are designed this way to make them as clear and easy to understand as possible, said Phil Harris, a Nasdaq adviser in New York.
“It’s a very clean and transparent ecosystem, which when you compare to the more over-the-counter marketplaces, you don’t have the same level of comfort,” Harris said.
Securing a foothold in the market won’t be easy. The majority of new futures contracts fail, said Craig Pirrong, a finance professor at the University of Houston. Competing with a successful contract is difficult because active buying and selling in an established future means investors can trade with little effect on the price compared with a contract that has low volume, Pirrong said. There are also reduced margin benefits from actively traded contracts that don’t exist at the beginning of a new contract, he said.
“We know the reason the success rate is so low is because liquidity attracts liquidity,” he said in a phone interview. One exception was in the 1990s when Eurex took trading of bund futures from Liffe due in part to a rapid shift toward electronic trading from floor-based open-outcry buying and selling, Pirrong said.
CME Group Inc., the world’s largest futures exchange and the biggest bourse operator by market value, also offers smaller versions of its currency futures, called E-Micro contracts. For example, the size of the regular euro-U.S. dollar contract is 125,000 euros, while the E-Micro is 12,500 euros.
Nasdaq is “going head-to-head with the currency micro products at CME,” Pirrong said.
Nasdaq’s biggest competitor in U.S. stocks, NYSE Euronext, is in the process of being acquired by Atlanta-based futures market owner IntercontinentalExchange Inc.