Nasdaq Plans Expansion in Clearing of Nordic Rate Swaps

Nasdaq OMX Group Inc., which operates seven Nordic and Baltic exchanges, plans to expand the range of interest-rate swaps it clears after processing about $15 billion of securities denominated in Swedish kronor.

The company, which is splitting its exchange and clearinghouse in the region to comply with European regulations, will now seek to clear interest-rate swaps denominated in Danish kroner, Norwegian kroner and euros, Hans-Ole Jochumsen, executive vice president for Nordic transaction services at Nasdaq, said in an interview. It will also start processing some products in the market for repurchase agreements, or repos, and plans to guarantee client trades by early next year, he said.

“After the summer break we’ve been getting more business in every day,” Jochumsen said. “Probably within two months we will have another clearing bank and that will boost volume too. We have another one coming sometime in the fourth quarter. We are building in close cooperation with the five large Nordic banks.”

The U.S. Dodd-Frank Act requires clearing for most swap contracts, while international regulations under the Basel III accords encourage the use of clearinghouses for the derivatives through favorable capital treatments. The European Commission is also working on legislation, called the European Market Infrastructure Regulation, which would govern most aspects of clearing. London-based LCH.Clearnet Group Ltd. is the world’s biggest interest-rate swap clearinghouse.

Mandatory Clearing

“We are serving banks in four Nordic countries,” Jochumsen said. “We have a commitment to clear whatever could be mandatory for Nordic banks. Our systems are built to be multicurrency. We are going to clear overnight swaps and a lot of different swap products that will be hit by mandatory clearing next year.”

Nasdaq has been diversifying the business to offset a global decline in stock trading. In the last few months, the exchange has bought the eSpeed platform for trading U.S. Treasury bonds, the shareholder-relations unit of Thomson Reuters Corp. and a 25 percent stake in The Order Machine, a Dutch alternative trading system focused on options. Nasdaq opened a futures exchange in London called NLX in May, offering short-term and long-term interest-rate derivatives.

Nasdaq now has 1,000 employees in Europe after the integration of the Thomson Reuters business. The company will have staff of around 600 people in the Nordics, 160 in the U.K., 125 in the Netherlands, 25 in France and 80 in Germany, Jochumsen said.

Interbank Trades

The company started clearing kronor-denominated interest-rate swaps in 2012, with members submitting interbank trades since April 22, 2013. Nasdaq OMX Clearing now processes 10 percent of interbank trades for the region and has an average daily cleared volume of 130 billion kronor ($19.9 billion) in Nordic interest-rate derivatives, Jochumsen said.

Nasdaq’s biggest rival, NYSE Euronext, agreed in December to be bought by futures bourse IntercontinentalExchange Inc. for $8 billion in a move that underscored the growing importance of derivatives in the face of shrinking volume worldwide. NYSE owns Europe’s second-largest derivatives exchange, Liffe, and will use ICE’s European clearinghouse to process its interest rate products.

Before it's here, it's on the Bloomberg Terminal.