Nasdaq Futures was announced in March with a goal of shaking up the energy futures markets. Since then, Nasdaq’s team has been busy building infrastructure and signing up new members. The question is, will they challenge the likes of CME Group’s Nymex or the Intercontinental Exchange?
Hans-Ole Jochumsen said that Nasdaq Futures, or NFX, has the model to compete with established markets. Its partnership with OCC will clear its natural gas, crude oil and power futures contracts at a mere 4 cents per side. That, coupled with the Nasdaq trading engine, GENIUM INET, that is common to many in the industry, will keep trading costs many times lower than entrenched competitors.
“We decided to partner with OCC, given the fact that it is the clearing house for the options market and in the US it’s already a relatively large clearing house,” he said. “So to add these products is to build on the scale the clearing house already has. It also means that OCC is able to deliver the clearing at a pretty low price, 4 cents per side. I think that’s pretty cheap.”
Jochumsen is optimistic about Nasdaq’s chances in a very competitive and established space. He said the exchange has the support from FCMs and participants that represent the bulk of the energy volume traded on CME’s NYMEX market and on the Intercontinental Exchange.
Nasdaq also set up the exchange with a lever that ultimately holds market making firms and other member firms accountable to trade on the new exchange. If they do not, they’ve agreed to pay for their lack of activity into the partnership.
That said, Jochumsen and his team are realistic about the growth rate for the exchange and the time it takes to build a market.
“We are relatively optimistic but we know this takes time,” he said. “This is not something that is going to happen within three months. You need to have a perspective, one or two years, before you can see whether it’s really successful.