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Last updated: December 10, 2013 5:38 pm
The new London derivatives trading venue of Nasdaq OMX has dramatically increased its trading volumes in recent weeks, helped by an incentive scheme that pays participants up to $1.5m for market share.
NLX, which has been in operation for six months, has struggled to attract much volume to its flagship products but has seen a leap in trading since mid-November.
More than half a million lots of sterling and euro-denominated interest rate contracts were traded in the final week of November, equivalent to about a fifth of the trading that took place on the Liffe, the market leader.
However, trading has been lumpy with large blocks frequently accounting for the majority of trades. Open interest also remains low, with only 21,000 contracts on its 3-month euribor interest rate contract that have not been closed, liquidated or delivered, according to Bloomberg data.
Its parent, Nasdaq OMX, sunk just over $50m into the venue, including regulatory capital requirements, to compete in listed fixed income trading with Deutsche Börse’s Eurex and Liffe, the London derivatives exchange now owned by IntercontinentalExchange.
The move has in part been due to an incentive scheme brought in at its debut that shares out $300,000 on a monthly basis between market participants if they take a market share of up to 2 per cent.
A sliding scale tops out with participants sharing up $1.5m between them for a market share greater than 5 per cent, according to two people familiar with the scheme.
Many venues and exchanges offer incentive schemes to encourage participation but they are often based on market making – NLX’s scheme is based on market share.
Charlotte Crosswell, chief executive, said NLX had doubled the amount of active market participants on the platform in October and November to 25.
“We will continue to evolve. People are willing to support us. The mindset has changed in the listed world. It has allowed us to broaden the participant base,” she said.
Those ranks are likely to be swelled in coming weeks when Trading Technologies, one of the world’s largest derivatives trading software providers, connects to NLX.
The technology group counts as its customers 19 of the top 20 futures commission merchants in the US, including Goldman Sachs, UBS and Newedge.
NLX, which also trades contracts on German government debt, is in advanced discussions with customers about developing a listed futures contract that mimics the economic properties of a swaps contract.
The products, known as swap futures, are being touted as a way for investors and brokers to comply with mandatory clearing of derivatives trades under new global legislation but without incurring extra cost.
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