Nasdaq Clears First Fund Trade of Nordic Rate SwapNandini Sukumar
Nasdaq OMX Group Inc. said its Nordic clearinghouse began processing interest-rate swaps for fund managers, clearing a trade by Nektar Asset Management to inaugurate the service today.
“This is the next step,” Hans-Ole Jochumsen, executive vice president for Nordic transaction services at Nasdaq, said in an interview. “In the first quarter of 2014, we will see more institutional clients.” Nasdaq operates seven Nordic and Baltic exchanges.
The U.S. Dodd-Frank Act requires clearing for most swap contracts, while the international Basel III accord encourages 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, that would govern most aspects of clearing. London-based LCH.Clearnet Group Ltd. is Europe’s biggest interest-rate swap clearinghouse and Nasdaq the second largest.
Nasdaq split its exchange and clearinghouse in the Nordics earlier this year to comply with European regulations. It is now seeking to clear interest-rate swaps denominated in Danish kroner, Norwegian kroner and euros.
The company started clearing Swedish kronor-denominated interest-rate swaps in 2012. Members have submitted interbank trades since April 22, 2013.
Nasdaq OMX Clearing has about 220 billion kronor ($33 billion) of open interest in Nordic interest-rate swaps, Jochumsen said.
Dealer revenue from negotiating interest-rate swap transactions may plunge 45 percent next year as new rules increase trading costs, according to Tabb Group LLC. Banks will collect about $3.25 billion this year from trading rate swaps with their customers, Tabb said. That will shrink to $1.8 billion in 2014 as most transactions shift to public markets.
Swaps dealers currently get about 95 percent of their revenue from trading fees and the difference between bid and ask prices, Tabb said. The remaining 5 percent comes from fees associated with clearing. The latter figure will quadruple because new laws will force bank customers to clear their trades, while the former will decline as spreads narrow, according to Tabb’s Will Rhode.