Nasdaq OMX NLX opened for business on the last day of May, offering a market for European short-term and long-term interest rate derivatives designed to provide ease of access, efficiency and the flexibility to respond to customer demands and list new products rapidly. Fast forward a couple of weeks and Charlotte Crosswell, CEO of NLX, says trading volumes are building, trades are being filled in 100 to 200 microseconds, and NLX is considering new developments.
The London-based market has evolved over the past 18 months and was launched on May 31, 2013, just two days after winning regulatory approval from the Financial Conduct Authority. Initially, it is supporting futures trading in three-month Euribor, three-month Sterling, long gilt, two-year Schatz, five-year Bobl and 10-year Bund, with LCH.Clearnet clearing trades using a horizontal model that creates portfolio margining opportunities.
The trading platform is based on Nasdaq OMX Genium Inet technology and has an in-house developed algorithmic matching engine that Crosswell says can achieve more on a pro rata basis than competitive matching engines. The selection of Genium technology over Nasdaq’s X-Stream Inet technology, which is perceived by many in the market to be faster, was made on the basis of functionality.
Crosswell explains: “Genium Inet provides very low latency and its functionality is better for NLX, a pure fixed income platform, than that of X-Stream. It balances risk and latency, and can still fill a trade in speeds between 100 and 200 microseconds. Low latency is always a race against competitors and NLX is very fast compared to incumbents in the market.”
NLX also selected Genium on the basis that it is at the heart of other Nasdaq markets, such as Nasdaq OMX Nordic, making it familiar to potential NLX participants and partners, and not a heavy lift for them to connect to the platform. NLX selected Equinix in Slough, west of London, as its primary data centre as it houses a number of firms that may want to trade on the exchange and offers a large selection of co-location facilities. A secondary data centre is provided by Interxion in east London.
Initial banks and clearing firms participating in NLX include BNP Paribas, Citi, GH Financials, Nomura, Royal Bank of Scotland and UBS. Brokerage and trading firms include DRW Trading, Financial Market Engineering, Getco Europe, The Kyte Group, Marex Financial, MET Traders, Newedge, OSTC and Tower Trading.
Market makers include Financial Market Engineering, Getco Europe, Nomura International, Pegasus Smart Trading and five others that decline to be named.
To date, Bloomberg, Thomson Reuters and CQG have signed up as market data providers, while execution software vendors include CQG, Easyscreen, FFastFill, Fidessa, Ion Trading, Object Trading, RTS, Stellar Trading and, coming soon, Trading Technologies. Post-trade vendors connected to the platform include Ateo, FfastFill, Rolfe & Nolan and SunGard, while connectivity is provided by AboveNet, TMX Atrium, Fixnetix, IP-Only, MarketPrizm, Options IT, Savvis, TNSI and Verizon.
Crosswell describes the set up for partners and participants as ‘plug and play’ and is targeting NLX primarily at large banks and market makers, but also mid-size banks, brokers and proprietary traders.
She says: “One of the drivers for NLX was that there is room in the European derivatives market for competition and appetite for competition. On day one, we handled about 3,500 lots and we are now handling over 25,000 lots a day. Trading volumes are building, but not necessarily linearly. “Our technology has the flexibility to add new products over time. We are talking to the market about what they would like to see on the platform and regulatory change is also likely to create more products. Realistically, I would expect NLX to offer more products at the end of this year, or early next year.”
NLX is not authorised to trade in the U.S. – although U.S. firms can use European firms to access the market – and this is also on the agenda to consider over coming months. Having stepped into the European derivatives market ahead of CME Group, which is expected to open a London-based derivatives exchange in September, and joined incumbents NYSE Euronext Liffe and Deutsche Borse’s Eurex exchange, NLX hopes it post-trade offering will stand it in good stead. Crosswell concludes: “Competitors are watching NLX to see how it gets on and the incumbents have reacted to NLX with new products and technology changes. Going forward, I see space for two or three platforms in each asset class in the European derivatives market.”