Nasdaq OMX plans London-based interest rate derivatives platform

Source: Nasdaq OMX

Nasdaq OMX (NDAQ) today announces its intention to launch a new London-based trading venue, NLX, offering a range of both short-term interest rate (STIRs) and long-term interest rate (LTIRs) euro- and sterling-based listed derivative products.

NLX aims to enhance the competitive landscape by providing highly competitive execution and clearing fees and significant margin efficiencies. The platform will be launched by Q1 2013, pending Financial Services Authority approval.

NLX is partnering with LCH.Clearnet, 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.

Charlotte Crosswell, Chief Executive Officer of NLX, said; "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 realise 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 added, "This puts us in a prime position to capitalise on market structure changes in this space, partly driven by Dodd-Frank, EMIR, MIFID II and Basel III."

NLX will enable simplified execution of a broad range of hedge, strategy and contingent trades and will support registration of both central order book and off order book trades on the same platform. An innovative approach to daily and final settlement price determination, where necessary, will link settlement prices to the wider OTC markets, thus providing more accurate and timely settlement price publication.

NASDAQ OMX has a longstanding track record of enhancing efficiency in capital markets, based on leading technology and an innovative culture. 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, Executive Vice President of Transaction Services U.S. and U.K. at NASDAQ OMX, said; "We have 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."

Alberto Pravettoni, Managing Director, Repo and Exchanges at LCH.Clearnet said; "This partnership with NASDAQ OMX is a further endorsement of the open and horizontal model and a testament to LCH.Clearnet's strategic direction. We are delighted to be working with NLX to provide world-class risk and collateral management solutions that address the market demand."

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."

Rhode added, "This will be a significant trading and clearing alternative to the incumbent solutions that currently dominate the marketplace."

Charlotte Crosswell said, "NLX has had very positive feedback from market participants on the proposition and has formed customer steering groups. The system is already in testing with LCH.Clearnet and we have already engaged with ISVs, post trade vendors and market data vendors to support the NLX platform. Agreements with UK-based data centers and network infrastructure providers are in place."

The launch of NLX is subject to regulatory approval by the UK Financial Services Authority.

NASDAQ OMX NLX Limited is in the process of seeking permission to operate a multilateral trading facility for this purpose. 

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