Nasdaq OMX plans life after MTF closure

Nasdaq OMX may reuse existing trading venue licences in the Nordic region to re-establish its pan-European ambitions, according to Hans-Ole Jochumsen, executive vice president at the exchange group.
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Nasdaq OMX may reuse existing trading venue licences in the Nordic region to re-establish its pan-European ambitions, according to Hans-Ole Jochumsen, executive vice president at the exchange group.

The group’s multilateral trading facility (MTF) Nasdaq OMX Europe, which trades stocks in 17 European markets, is due to cease trading on 21 May, following an internal assessment of the platform’s financial prospects. The MTF, which launched in September 2008, traded 0.73% of pan-European liquidity in April, a slight decrease on March’s 0.79%. The MTF had its best month in November last year, trading 1.13%, or €7.59 billion of European equity turnover.

Jochumsen, who will add responsibility for Nasdaq OMX’s pan-European equity trading following the MTF’s closure to his role as head of Nordic exchanges, revealed that any future European initiatives could leverage existing MTF and exchange licences in Sweden and Denmark.

Nasdaq OMX currently uses MTF licenses in both countries for its First North alternative equity market, while it is also the operator of the domestic exchanges in Denmark, Sweden and Finland.

“Our next pan-European strategy will be driven by customer demand and is most likely to be done on a market-by-market basis,” Jochumsen told “We may look at it in the same way we have done for Norwegian shares, where we have used our regulated market in Sweden to trade Oslo-listed shares.”

Nasdaq OMX Stockholm started trading Norway’s OBX index in March 2009, making it the only bourse to take advantage of MiFID’s capabilities for regulated exchanges to trade stocks from other countries. Since the turn of the year it has been battling with Chi-X Europe to become the second biggest trading venue for Norwegian stocks after the Oslo Børs. According to numbers from data vendor Thomson Reuters, Nasdaq OMX Stockholm accounted for 4.39% of Norwegian blue-chip liquidity in March compared to Chi-X’s 2.86%. In April however, Chi-X accounted for 3.6% compared to Nasdaq OMX’s 3.25%.

“By reusing our existing licenses, it’s a lot easier for customers, who essentially get access to extra markets using their current technical infrastructure,” said Jochumsen.

In the meantime, Jochumsen will concentrate on attracting more high-frequency traders to the domestic venues in Stockholm, Copenhagen and Helsinki, in a bid to stave off competition from multilateral trading facilities.

According to Thomson Reuters’ figures, Nasdaq OMX’s share of trading in the Nordic region continues to decline. In April 2010, for example, its share of trading in the OMX Stockholm index stood at 61.6% compared to 71.1% in January 2009, while its share of OMX Copenhagen stocks has dropped to 80.7% from 96.5% in the same period.

Although the domestic exchanges in the Nordic region have fared better than incumbent counterparts elsewhere in Europe, competition is intensifying. Burgundy, a Nordic-only MTF and so far the only significant region-specific trading venue in Europe, reached a high of 3.44% of Swedish stocks in March, while Chi-X Europe increased its share of Swedish stocks to 16.28% in April, compared to 12.57% in January 2010.

But Jochumsen thinks recent initiatives from Nasdaq OMX Nordic have contributed to an overall growth in Nordic trading volume, in particular from high-frequency trading firms.

“The combination of adding a central counterparty, harmonising tick sizes and migrating to the INET trading system has allowed us to grow the amount of high-frequency trading on our exchange,” he says.

The addition of a CCP and in particular trade netting capabilities is well suited to the large trading volumes executed by high-frequency traders, while the shift to INET in February this year has reduced latency to sub-millisecond levels.

Jochumsen notes that market maker Citadel now has a 5% share of trading in the Nordic markets compared to almost zero half a year ago and that specialist high-frequency shops are starting to connect to the INET platform.

The increase in high-frequency trading is also evident from the increase in the average number of trades across Nasdaq OMX’s Nordic platforms, which was a record 315,172 trades per day in April 2010, compared with the previous best of 303,881 trades per day in October 2008, and an increase in algorithmic trades to 30% in April 2010, compared to around 15% in mid-2009.

“We will likely lose more of our market share to MTFs, but we will continue to embark on initiatives that will focus on growing the Nordic market as a whole,” said Jochumsen.