The London Stock Exchange (LSE) has decided to replace its Nasdaq OMX derivatives trading system with Canadian exchange group TMX’s SOLA platform as part of a plan to develop its derivatives business.
The exchange plans to move its EDX London derivatives operation, which offers trading and clearing in Russian and Nordic equity and fixed income derivatives, over to SOLA in November 2009. As part of the deal TMX will take a minority stake in EDX London. As negotiations are continuing, the size of the stake was not disclosed.
“The partnership will give us more independence and freedom to develop our derivatives business,” said an LSE spokesperson. “SOLA is very scalable and simple to deal with, and we are looking to develop new derivatives products in the future.”
The exchange’s two other derivatives businesses – IDEM, which trades Italian equity derivatives, and IDEX, a power derivatives market – also use Nasdaq OMX technology and are expected to move over to SOLA eventually, although the exchange has not set a timeframe for this.
EDX London was formed in 2003 as a joint venture with Nordic exchange group OMX, which was bought by Nasdaq in 2007. Nasdaq OMX announced its intention to wind down its participation on the joint venture in 2008.
“Since Nasdaq took over OMX it became clear that the company wasn’t the most appropriate partner to develop our derivatives business with, and so we decided to look for another partner that would give us more freedom to develop the business,” said the LSE spokesperson.
As well as giving the LSE more flexibility to add new products, SOLA will also offer reduced latency. SOLA was developed by the Montréal Exchange, a TMX subsidiary.
Derivatives accounted for 9% of the LSE’s trading revenue in Q4 2008, while cash equities accounted for 66%. Market observers have frequently highlighted derivatives as a growth area for the LSE.