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Nasdaq OMX to Launch Interest Rate Derivatives Platform

Partnering with LCH.Clearnet, Nasdaq OMX's London-based NLX will offer competitive execution and and clearing fees as well as margin efficiencies, says the exchange operator.

Nasdaq OMX said it intends to launch a new London-based interest rate derivatives platform positioning the company for market structure changes in derivatives. The new venue, NLX, is going to offer a range of short-term interest rate (STIRs) and long-term interest rate (LTIR) euro- and sterling based listed derivative products.

According to today’s announcement from the global exchange exchange operator, NXL will bring new technology providing highly competitive execution and clearing fees and significant margin efficiencies.

NLX is partnering with LCH.Clearnet, the largest clearinghouse for interest-rate derivatives, which will provide clearing and settlement services. All instruments will be cleared through Synapse, LCH.Clearnet’s strategic derivatives clearing platform.

Listed products across the yield curve will be cross-margined within a single clearing risk pool using PAIRS, LCH.Clearnet's proprietary VaR based margining methodology, subject to regulatory approval. This will result in optimized margin calculations for customers.

"The new market will be a single platform for both short-term interest rate and long-term interest rate euro- and sterling-based listed derivative products. This new trading venue will be very exciting as it will have the potential to realize significant cost savings for customers. The combination of strong technology, risk management and the market presence of NASDAQ OMX and LCH.Clearnet has allowed us to build a very competitive offering and we have a system ready for customer testing." Crosswell, CEO of NLX, added; "This puts us in a prime position to capitalize on market structure changes in this space, partly driven by Dodd-Frank, EMIR, MIFID II and Basel III."

Commenting on the implications of the new derivatives platform, Will Rhode, a Principal and Director of Fixed Income Research at TABB Group, said; "The buy-side are looking for solutions that can help alleviate the collateral burden resulting from financial market reform and they will welcome this initiative by NASDAQ OMX. European regulators will likely be pleased to see a horizontal clearing structure come to market where trade flow from NLX, other exchanges and platforms and the OTC market will be able to co-mingle within a single clearing house."

Nasdaq OMX said that NLX has been built on NASDAQ OMX's proven Genium INET platform, with ultra low latency processing and rich trading functionality. NLX will offer flexible connectivity, including FIX for ease of connectivity, as well as the ITCH protocol for low latency market data. The integrated technology solution is already in testing.

Eric Noll, EVP of Transaction Services U.S. and U.K. at NASDAQ OMX, said; the exchange operator has “chosen to partner with LCH.Clearnet because they have the risk management expertise, an existing strong presence in Europe and proven clearing capabilities and technology in these products."

The platform will be launched by Q1 2013, pending regulatory approval by the UK Financial Services Authority. NASDAQ OMX NLX Limited is also in the process of seeking permission to operate a multilateral trading facility (MTF) for this purpose.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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