Exchange competition continues to dominate the listed futures landscape in Europe and the US with two new venues taking steps toward challenging incumbents.
In London, the futures exchange developed by Nasdaq OMX – NLX – is still hopeful of going live in Q2 2013, while wholesale broker GFI has filed with the US Commodity Futures Trading Commission (CFTC) to open the GFI Futures Exchange (GFIX), a designated contract market.
The NLX venue will press ahead with plans to launch this quarter according to market sources, following a request by the Financial Services Authority at the end of last month for further testing on the Value-at-Risk model (VaR) used by the platform’s clearing house, LCH.Clearnet.
NLX had conducted several rounds of testing in March with members using representative levels of flow but the regulator, succeeded this month by the creation of the Financial Conduct Authority, “wanted the most robust stress testing possible”, a source said.
LCH.Clearnet already uses VaR to calculate margin on its SwapClear global clearing service for interest rate swaps, but most listed futures exchanges use the SPAN methodology. NLX chose VAR margining specifically to align itself with the OTC instruments that are migrating to central clearing and exchange trading under the reforms to the derivatives market requested by the Group of 20.
NLX intends to launch with three-month euribor and sterling short-term interest rate futures as well as longer-term gilt and bund futures.
Meanwhile, GFI’s filing with the CFTC comes after the broker had previously announced its intention to register as a swap execution facility (SEF), but the rules for the new venue types – introduced by the Dodd-Frank Act specifically to allow more automated and standardised trading of swaps – have yet to be finalised by the regulator.
The GFIX filing does not specify the types of contract the exchange will offer.
A number of firms that planned to register as SEFs have recently expressed their frustration with the delay in finalising rules and concerns that the new regulatory framework would favour existing futures exchanges.
Credit market operator MarketAxess recently sought a temporary exemption from SEF registration due to the associated cost burden, while Bloomberg, a global provider of data, analytics and execution services, has threatened the CFTC with legal action over what it believes to be disadvantageous margin treatment for swaps compared to swaps futures.