Nasdaq NLX hopes activity will increase to the exchange following the launch of a new portfolio margining service from LCH.
In anticipation of the service, called LCH Spider, NLX will renew a market making scheme for its interest rate futures market, providing banks acting as a direct market maker a full rebate on their execution fees.
“[Once LCH’s Spider goes live] we hope to see volumes increase at NLX. The conversations we’ve had to date with potential bank clients has been based on the theoretical portfolio margining exercise, but now it is up and live we can prove those savings,” says Victoria Kent, NLX’s newly appointed head of business development (she was previously head of European sales).
NLX will be the first exchange to go live on LCH Spider, which will allow banks that clear interest rate swaps at LCH’s SwapClear to offset their trades with interest rate futures traded on NLX.
According to a self-certification document to the US Commodity Futures Trading Commission (CFTC), LCH stated “the rule changes will go live on, or after, 23 May 2016.” LCH has publically said the service will go live in the second quarter of the year.
The scheme is the latest from the exchange as it looks to revive interest in trading on the platform. It has historically maintained low trading fees for clients, in which it currently charges 1p per lot per side for its short and long-term interest rate futures products.
“We are operating at low fees to be competitive, but if you look at the impact of portfolio margining our thought is as the banks can reduce their capital usage they can pass those benefits onto the end-client,” adds Kent.
NLX will face stiff competition when CurveGlobal, the incoming interest rate derivatives platform launched by the London Stock Exchange, goes live on LCH Spider in the third quarter of this year.
In addition, LSE and Deutsche Boerse have announced they will develop a portfolio margining service upon completion of the merger, subject to regulatory approval.