Nasdaq’s CEO Bob Greifeld shook things up at the FIA Boca Conference with the announcement it plans to launch a new futures exchange that will focus on energies, bringing new competition to the Intercontinental Exchange and CME Group.
Greifeld spoke with John Lothian News editor-in-chief Jim Kharouf about the new pricing and clearing model, as well as his views on regulation, technology and how Nasdaq is positioned going forward.
“The statement of the problem is this, we do not have a single customer who says ‘I would prefer to be in a vertical monopoly, I prefer to be in a situation where my open interest is trapped in a clearing house and locked into the trading,’ ” he said. “That’s the fundamental problem we’re trying to solve.”
From a pricing standpoint, Greifeld said that higher prices established during the open outcry era have not sufficiently declined in the electronic trading world markets use today. In his view, this is about making transaction costs much more fair, as well.
“Most of the benefits from becoming electronic and evolving from open outcry have actually accrued to the exchanges and not to the trading participants,” he said. “So our effort is to democratize that return on the electronification of the markets.”
Greifeld said other derivatives markets, such as equity options, have seen a major downward shift in prices. Nasdaq options transaction fees, for example, are just 20 cents per trade, while futures trading on ICE and CME Group are priced somewhere between $1.30 to $1.40. Nasdaq Futures plans to price their energy futures around 60 cents per side.
But Greifeld said the new competition in the marketplace is not just about price.
“Our customers, partners, would not be so interested in joining with us if it was just about cost savings,” he said. “It’s fundamentally about a philosophy and an architecture where the clearing house is horizontal, meaning it will take in multiple trading venues and provide cross margining services. So you are really trying to create a whole different business model.”
For Greifeld, the task at hand is to get established but he said he’ll embrace the underdog label for now. “It’s always more fun to be David instead of Goliath,” he said.