Nasdaq Takes on CME and ICE

Terry Flanagan

In launching an energy futures exchange, Nasdaq is going head-to-head with the U.S. commodities behemoths, CME Group and IntercontinentalExchange.

“We will be offering futures and options on futures on the key energy benchmarks in crude oil [WTI and Brent], natural gas [Henry Hub] and power,” Magnus Haglind, head of U.S. commodities for Nasdaq OMX and CEO of Nasdaq Futures, told Markets Media. “It will be in competition with the incumbents, CME and ICE. What we are offering is a low fee and a rebate model based on volume, which doesn’t depend on whether or not you’re a member.”

Crude oil, including combined WTI and Brent, “is trading a couple of million contracts a day but the pricing of these products still reflects floor trading, so ‘electronification’ of the markets and the efficiencies that come with that haven’t transferred to market participants,” Haglind said. “What we are proposing is to trade these products in a more cost-efficient way.”

Nasdaq Futures (NFX) will offer competitive pricing, clearing and technology for futures and options based on key energy benchmarks including oil, natural gas and US power, and will launch mid-2015 pending regulatory approval, Nasdaq said in a release.

Nasdaq has secured support from trading firms, inter-dealer brokers, and futures commission merchants to facilitate product distribution and early liquidity. Founding market participants include ABN Amro Group, Advantage Futures, Goldman Sachs, JP Morgan, Morgan Stanley and Virtu Financial.

“Our strategy is always to meet demand where competition is lacking, and our global benchmark product suite will provide commodity market participants across the planet with a new solution to meet their trading and hedging needs,” said Hans-Ole Jochumsen, president of Nasdaq, in a statement. “We will leverage our market expertise and the client relationships we’ve established through our global commodities business, which already includes the world’s most liquid electricity market and the leading market for freight derivatives, as well as trading in German, Dutch and UK energy derivatives.”

Nasdaq will offer cash-settled energy derivatives with a transparent fee structure. As the products will be cleared through The Options Clearing Corporation, market participants will benefit from OCC’s experience in derivatives clearing and its industry utility clearing model that passes on operating efficiencies in the form of reduced costs.

“We are going to clear through OCC,” said Haglind. “They are clearing all U.S. equity options and are also clearing VIX futures, so they are expanding their capabilities to clear energy products.”

“OCC has a proud history of clearing a wide variety of derivatives products for Nasdaq,” said Michael McClain, president and chief operating officer of OCC, in a statement. “We look forward to expanding the use of our world-class operational and risk management infrastructure to clear energy derivatives for NFX.”

NFX, the exchange group’s U.S.-based designated contract market (DCM), will leverage the exchange group’s Genium INET technology, and the platform will be domiciled in Chicago. The platform provides open and neutral access, and firms will be able to access the market through proprietary order management systems, broker platforms, and leading independent software vendors.

Nasdaq’s Global Commodities offers trading and clearing for various related assets including power, natural gas and carbon emission markets, tanker and dry cargo freight, fuel oil, seafood derivatives, iron ore, electricity certificates and clearing services.

Featured image by bfishadow/Flickr under creative commons

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