EXCHANGE WILL PROVIDE MARKET PARTICIPANTS ACCESS TO NEW SUITE OF ENERGY PRODUCTS
NASDAQ IS EXPANDING into energy derivatives. As this issue of OGFJ goes to press, the exchange group was preparing to launch its new energy futures trading platform (NFX), which will allow the trading of oil, natural gas, and US power derivatives.
Nasdaq NFX is designed to introduce competitive pricing and an innovative clearing platform to the futures and options market, based on key energy benchmarks including oil, natural gas, and US power. Nasdaq says NFX will benefit market participants who use derivatives to hedge energy exposure.
The platform was built on the notion that increased competition will drive innovation in the market. In that vein, NFX is offering a fundamentally different fee structure based on flat fees (rather than volume-driven which is the traditional structure), an innovative horizontal clearing system, and ultimately, lower cost.
Nasdaq's Global Commodities business offers trading and clearing solutions for assets including power, natural gas and carbon emission markets, tanker and dry cargo freight, fuel oil, seafood derivatives, iron ore, electricity certificates, and clearing services.
Nasdaq says its goal is to provide a cost-effective, transparent, and efficient marketplace that appeals to all types of trading entities.
In an interview with OGFJ, Magnus Haglind, head of US Commodities at Nasdaq, said NFX will address the inefficiencies in the energy futures market and provide market participants the best value for the lowest price, a crucial proposition for energy producers who manage their bottom line in the current low-price commodity environment.
"Market participants will benefit from increased competition," said Haglind. "We continue to see strong interest from market participants, and we are working with them to facilitate easy access to our markets."
Haglind explained to OGFJ why Nasdaq has chosen to create the new NFX energy futures market at this time: "Nasdaq has expanded and changed quite a bit during the past few years. We have diversified the business through different acquisitions. We were previously known as an equity market focused on the US. Through the acquisition of NordPool in 2008, we expanded into commodities. Until now, our current focus in commodities has been on European power and in freight. With that knowledge base and the customer reach and range we have, we had a lot of conversations with the marketplace and the feedback we got was that the transaction cost in commodities trading was too high compared to many other asset classes out there. We thought we could do better. The efficiencies of electronic trading should drive the transaction costs down, but competition is essential for this to happen.
"With our knowledge base and our technology base, we decided it was time to commoditize and offer a more cost-efficient platform to trade the products that currently are provided through a duopoly of the incumbents. With our horizontal clearing model, transaction costs are clearly much, much lower for our clients."
Rick Beaman, head of US Commodities Sales at Nasdaq, noted, "We're bringing efficiencies to the market in the way that only Nasdaq can do, as we do in the stock market. We're coming in at a very reduced rate. Cots are important if you're an options trader or someone with physical assets - oil producers, refiners, etc. We think this is the right time to introduce these cost efficiencies and bring much-needed change to an outdated market that's been in place for the past 15 to 20 years as far as pricing is concerned. We're no longer open outcry; we're an electronic market that deserves to be priced accordingly."
Haglind added, "What we're saying is that transaction costs should be more reasonable. No one is going to do this if you have only one or two exchanges out there. We are re-introducing the element of competition into the markets. We're telling everyone - we think this is the more reasonable transaction cost."
The NFX initiative has been endorsed by a number of trading firms, inter-dealer brokers, and futures commission merchants (FCMs), who wish to facilitate broad product distribution and early liquidity. Market participants include ABN AMRO Group, ADM Investor Services, Advantage Futures, Citigroup Global Markets, ED&F Man Capital Markets, Goldman Sachs, INTL FCStone, JP Morgan, Merrill Lynch, Mizuho Securities USA, Phillip Capital, Rosenthal Collins Group, Société Générale, and Wedbush Futures.
Nasdaq is creator of the world's first electronic stock market. Its technology powers more than 70 marketplaces in 50 countries, and 1 in 10 of the world's securities transactions. Nasdaq is home to more than 3,500 listed companies with a market value of approximately $9.5 trillion and more than 10,000 corporate clients.