Nasdaq NLX no longer a
startup, ready to take on incumbents
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[June 02, 2014]
By Clare Hutchison
LONDON (Reuters) - Nasdaq
OMX's London-based derivatives market no longer
considers itself a startup after a year of trading,
having won significant market share, and expects to be
able to challenge incumbents on new products, its chief
NLX, trading for exactly 12 months as of Monday, handles a range of
short- and long-term interest rate, euro and sterling-denominated
derivative products on a single market.
It competes with Deutsche Boerse's Eurex, the dominant player in
long-term contracts, and IntercontinentalExchange's Liffe, which is
dominant in short-term contracts.
NLX has now traded over 14 million lots and has a 30-day
moving-average market share of 16 percent in Euribor, the world's
second-largest short-term interest rate contract after Eurodollar.
Its overall market share across all of its products amounts to 5
percent, still less than the 10 percent Nasdaq targeted.
But NLX CEO Charlotte Crosswell told Reuters its share has been
enough to answer those who questioned whether it could hold its own,
attract investors and gain an audience with buy-side firms.
"We are coming out of our start-up phase. We are seeing some client
flow now because we hit 10 percent (in Euribor), and that's bringing
more volume," Crosswell said, adding that NLX is currently adding
more participants, which will bring the total connected to it to
roughly double the 16 it started with.
Crosswell said the impact NLX has had on Liffe or Eurex was not
clear, because the static interest rate environment has kept volumes
lower than usual. She also acknowledged that NLX was lucky with
timing, launching before new rules on derivatives trading kicked in.
The regulations, which are pushing more derivatives trading onto
exchanges and through central clearing in the interest of greater
clarity and lower risk, have since created new opportunities when it
comes to products, Crosswell said.
NLX is considering launching swap futures - standardized contracts
that mimic the economic exposure of traditional over-the-counter
(OTC) interest rate swaps but are traded on an exchange and require
It faces stiff competition, however, as a handful of other exchanges
are looking at these products. Eurex outlined its own version last
"It's an interesting space. When did you last look at a product that
everyone thinks is going to be successful and nobody is the
incumbent exchange on it?" Crosswell said.
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As mandatory clearing of derivatives comes in under the EU's
European Markets Infrastructure Regulation (EMIR), Crosswell
believes NLX could further benefit.
Participants on NLX can trade both the short and long ends of the
interest rate curve and clear in one location, LCH.Clearnet, which
means they may be able to make savings on the margin put up as
collateral. Trading on ICE and Eurex means using their respective
"That's really what's driving banks and the buy side – where can
they clear? Where can they get margin efficiency? Being able to tap
into what I call the incumbent clearer is absolutely key to our
potential success," Crosswell said.
LCH.Clearnet is majority-owned by the London Stock Exchange.
In the short term, the addition of more market makers - several of
whom will be matching the prices quoted by incumbents from Monday -
could drive more flow, Crosswell said.
The exchange is also set to alter its fees and clearing charges -
currently at zero - and revamp its incentives scheme at the end of
(editing by Jane Baird)
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