Nasdaq OMX puts Nordics on path to interoperability

Nasdaq OMX Nordic, which runs the northern European exchange businesses of global exchange operator Nasdaq OMX, expects to finalise plans to offer its members clearing choice within the next six to nine months.
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Nasdaq OMX Nordic, which runs the northern European exchange businesses of global exchange operator Nasdaq OMX, expects to finalise plans to offer its members clearing choice within the next six to nine months.

The group's Copenhagen, Helsinki and Stockholm bourses will initially offer clearing choice between central counterparties (CCPs) EuroCCP, SIX x-clear and EMCF. According to Nasdaq OMX, the three CCPs chosen were dictated by customer demand, although Anglo-French clearing house LCH.Clearnet could be added at a later date.

The London Stock Exchange became the first regulated market in Europe to offer clearing choice – between SIX x-clear and LCH.Clearnet – in September 2008, but Nasdaq OMX Nordic intends to become the first domestic European market operator in Europe to enable members to select between more than two clearing houses

Hans-Ole Jochumsen, president, Nasdaq OMX Nordic, told that a firm date for the launch of interoperability would be announced shortly.

“We have been very vocal on our plans to establish interoperability with EuroCCP, SIX x-clear and EMCF since 2009,” said Jochumsen. “The length of time it has taken is a demonstration of the technicalities and the regulatory hurdles we had to overcome, but we are now close to completing the project and hope to announce a target date within the next few weeks.”

According to Jochumsen, agreements still need to be finalised with the CCPs and regulatory approval is pending from the securities market regulator of each country.

“Because we have the majority of trading in the market, we are subject to greater scrutiny compared to multilateral trading facilities (MTFs),” he said. “However, we do not foresee any problems in satisfying regulatory requirements.”

The launch of interoperability at Nasdaq OMX will mark another stage in the rapid evolution of the post-trade structure of the Nordic markets. In October 2008, Nasdaq OMX purchased a 22% stake in EMCF, after the CCP's parent, Fortis Bank Nederland, required a state bailout during the financial crisis. Nasdaq OMX used its stake to launch central counterparty services for Denmark, Finland and Sweden in October 2009. The Nordic markets previously cleared equity trades bilaterally.

Jochumsen added that he hoped Nasdaq OMX's interoperability plans would “spur other national exchanges to follow suit”.

Currently, German exchange group Deutsche Börse and Spain's Bolsas y Mercados Españoles are among the bourses that operate vertical silos and would likely see a substantial decrease in post-trade revenues if they offered clearing interoperability. NYSE Euronext, which runs exchanges in Amsterdam, Brussels, Lisbon and Paris, previously planned to build clearing houses in Paris and London by 2012 to replace existing services from LCH.Clearnet. However, following a takeover approach by Deutsche Börse earlier this year, NYSE Euronext announced in June that it would extend its contract with LCH.Clearnet until 2013.

The DB/NYSE merger is currently being scrutinised by European competition authorities, with a decision on the deal expected by 13 December 2011.

On 29 July, BATS Europe, the MTF owned by US-based market operator BATS Global Markets, launched a preferred interoperability service involving SIX x-clear, LCH.Clearnet and EuroCCP. Under BATS' scheme, trading participants on both sides of the trade must nominate the same preferred clearer, with EMCF, BATS Europe's incumbent clearer, acting as default CCP if the brokers do not agree.

EMCF initially declined to participate in interoperability projects, stating that, “there is no expectation that we or other CCPs will get access to any major European trade feed”. However, EMCF has since changed its stance and has now agreed to participate in BATS Europe's interoperability programme, as well as a similar initiative announced last week by rival MTF Chi-X Europe.

Chi-X Europe, which is currently the subject of a takeover by BATS Global Markets has said that, subject to regulatory approval, it will offer its members the ability to select from four CCPs – EMCF, EuroCCP, LCH.Clearnet and SIX x-clear – from 1 January 2012. The service will be available for all equities traded by Chi-X, except for Spanish stocks.

SIX x-clear, EMCF, and EuroCCP have all announced fee cuts to coincide with the various venues' interoperability schemes, as CCPs begin to open up to a new era of competition.