Nasdaq OMX NLX trading volumes are trending upwards, with the exchange seeing an increase in activity in long-term interest rate derivatives products over the past month.
NLX launched earlier this year, offering short-term interest rate and long-term interest rate euro- and sterling- denominated listed derivatives products.
In the week of its launch, the exchange facilitated the execution of 56,056 lots from 31 May to 7 June, with a daily high of 16,379.
About three months later, trading volume reached 108,399 lots in the week of 7 October. This was considerably higher than the week of 30 September and 23 September, when volumes were 67,582 and 64,947 respectively, according to NLX’s figures.
The Trade understands the increase in volume is due to NLX’s recent push of long-term products this month. On 11 October, for example, 4,246 two-year Schatz were traded – that number was zero in September.
Developing both long- and short-end curve is part of NLX’s margin efficiency strategy.
Speaking at the European Exchange Summit in London this week, NLX CEO Charlotte Crosswell spoke about the collateral squeeze as a result of new capital requirements, the US’ Dodd-Frank Act and the European market infrastructure regulation.
“We see the importance of margin efficiencies,” she said. “I think this is the challenge we’ve got in derivatives in Europe. You have the short end sitting at ICE, the long end sitting at Eurex, and OTC sitting at LCH.Clearnet.”
NXL has partnered with LCH.Clearnet, offering margin offsets through clearing long- and short-dated listed instruments at one central counterparty (CPP).
Crosswell said the exchange also had visions to open up margin offsets for OTC trading, though there were regulatory barriers.
“It’s not as simple as opening up one big default fund for listed products and OTC. But I think there are opportunities for an individual bank to say ‘I want my listed flow offsetting my OTC flow’,” she said.
“If banks want to keep their OTC flow sitting at LCH, you’d think they’d drag their listed derivatives to LCH. I think that’s going to be the driver.”
Hirander Misra, former Chi-X Europe COO and CEO of new entrant Global Markets Exchange (GMEX) Group, said it was hard to build market share in derivatives, with barriers of entry and the challenge of gaining traction. Misra named fungibility as the biggest problem for clearing exchange-traded derivatives.
“They may be similar products or even identical products trading on these different platforms, but they margin differently,” he said.
GMEX, which will offer interest rate swap futures contracts, is currently seeking regulatory approval.