Oslo Børs is establishing Oslo Connect, a new regulated marketplace for trading in non-standardised derivatives (OTC derivatives).
The launch of this marketplace will give investors a new and unique venue for efficient and secure trading in derivatives that are not stock exchange listed.
Oslo Connect will be structured as a Multilateral Trading Facility (MTF) and will be based on a set of marketplace rules that will ensure higher standards of consistency and openness than an unregulated marketplace can offer. Oslo Børs was granted authorisation by the Financial Supervisory Authority of Norway (Kredittilsynet) to establish an MTF earlier this week. The new marketplace will open for business later this autumn, but no date has as yet been set for the launch.
Oslo Clearing already offers flexible settlement services and takes over counterparty risk on behalf of the participants for both the standardised and OTC derivatives markets. By launching Oslo Connect, Oslo Børs VPS Group will offer investors access to the entire value chain, with a trading venue operated by Oslo Børs and Oslo Clearing taking over counterparty risk.
"Oslo Børs recognized OTC derivatives as an attractive market in which to operate quite some time ago. We believe that it should be possible to trade in a market as large as this on a regulated marketplace. In addition, the financial crisis has made market participants much more aware of counterparty risk, and we can meet their needs with the services of Oslo Clearing", comments Bente A. Landsnes, President of Oslo Børs and Group Chief Executive Officer of Oslo Børs VPS.
The OTC derivatives market offers greater flexibility than the regular stock exchange market for derivatives. The parties to a transaction have greater scope to customise the terms and conditions of the deal (Tailor Made derivatives), including details such as the expiry date, exercise price and adjustments for dividend payments. The regular stock exchange market in Oslo offers trading in derivatives based on 15 underlying shares listed on Oslo Børs, and derivative contracts for the OBX index, but the OTC market makes it possible, in principle, to arrange derivatives trading on any underlying share.
Trading on Oslo Connect will take place either through the EDGE trading system (provided by Baymarkets) or through the Oslo Børs Market Place Service for derivatives (MPS). In addition to trading, the EDGE system will offer the opportunity to register trading interests and to access a pre-trading price information system. This will also make it possible to identify more than one potential counterparty, which will help to improve the price picture. The system will also allow members to negotiate contract parameters on an anonymous basis prior to entering into a trade.
Investment firms and other institutions that are authorised by Kredittilsynet or by an equivalent foreign supervisory body will be eligible to apply for membership of Oslo Connect in order to access the marketplace. In addition, Oslo Børs collaborates with EDX London, which means that members of Oslo Connect will also be able to trade OTC derivatives across national boundaries.