Reuters: Regulatory News: Nasdaq woos traders to back new European futures market

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Nasdaq woos traders to back new European futures market Nov 1st 2012, 17:12 By Luke Jeffs LONDON | Thu Nov 1, 2012 1:12pm EDT LONDON Nov 1 (Reuters) - Nasdaq OMX is offering incentives to European trading firms in a bid to win support for its nascent futures exchange and ensure a strong start for a market aiming to boost competition in European futures trading. The New York-based exchange is talking with banks and other trading houses, encouraging them to use NLX, a London-based futures exchange set to debut in the first quarter of next year, subject to regulatory approval. "We are working collaboratively with a group of clients and discussing a range of incentives to encourage market-making and volume growth on the platform," said Charlotte Crosswell, the chief executive of Nasdaq OMX NLX. She declined to comment further but other fledgling European exchanges have in the past offered lower fees, a share in profits or equity stakes in return for the vital early support of trading clients. Market-makers, effectively traders that quote buy and sell prices, are important because they should ensure some activity on the venue immediately after launch. This is seen by traders as vital if a new market is to attract other firms and start building a critical mass of liquidity, which, in turn, will lure more companies. European futures traders want new exchanges to boost competition among exchanges in the hope it will generate a price war between rivals and force down costs for trading houses. NLX, which plans to list European interest rate futures, is going up against two large incumbents in the shape of NYSE Euronext and Deutsche Boerse. NYSE Euronext's Liffe has long dominated trading in European short-term interest rate derivatives while the Boerse's Eurex market is the European venue of choice for long-term interest rate products. "We are offering cheaper fees but cheaper fees alone are not going to work," said Crosswell, who said clients will derive extra savings from using a single clearing house for both short and long-term products. Clearing houses seek to reduce the risk of trading on exchanges by collecting money from trading clients that is used to reimburse any parties left out of pocket by the collapse of a firm with which they were trading. Banks and brokers like to keep the number of clearers they use to a minimum to reduce the amount of cash, known as collateral, they are required to give up to clearing providers. Liffe clears through Anglo-French firm LCH.Clearnet while Eurex uses the Boerse-owned Eurex Clearing whereas Crosswell sees major savings for clients if they use a single provider for both short and long-term products. Nasdaq has struck a deal with LCH to act as its sole provider of clearing services for both short and long-term products. "Previous attempts to break into European interest rate futures have failed because they have not found a strong clearing house but we are partnering with LCH, which offers a great advantage in that all the major futures trading firms are members already," Crosswell said. In 2008, a consortium of investment banks tried to establish a new European futures exchange in competition with Liffe and Eurex under the banner Project Rainbow but it is said to have failed because it could not find a clearer. Crosswell believes regulatory reforms of the over-the-counter swaps markets could also present opportunities for her new exchange. "The future of NLX will involve new products and geographies and if we look at the regulatory picture there are potentially a lot of new products coming to market," she said. "There is a real momentum building behind the idea that derivatives competition is about to take off." Link this Share this Digg this Email Reprints

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