Nasdaq tempts energy traders with extended fee holiday

Nasdaq is planning an extended fee holiday to tempt traders to its new energy market, mounting an aggressive challenge to the two reigning oil and gas futures exchanges.

The upstart Nasdaq Futures exchange plans to launch 28 energy contracts at midyear as it diversifies beyond stock trading. Bob Greifeld, Nasdaq chief executive, has argued energy markets are a “monopoly” dominated by CME Group and Intercontinental Exchange.

“The exchange will assess no transaction fees for energy products to any market participant during the initial nine months,” Nasdaq disclosed in a regulatory filing. Options Clearing Corporation of Chicago, which will settle the trades, will also suspend clearing fees for nine months, the filing said.

According to FIA, the futures industry association, 1.16bn energy futures and options contracts were traded worldwide last year. CME and ICE together generated about $1.2bn in energy revenue last year.

Nasdaq’s efforts illustrate the difficulty of grabbing market share from established futures exchanges. Traders tend to flock to the deepest markets where they can enter and exit without moving prices. CME and ICE also require contracts executed on their exchanges to be processed at their own clearinghouses, inhibiting movement across venues.

CME and ICE are locked in a battle already in the energy market, both listing identical contracts such as Brent crude, Henry Hub natural gas and gasoline.

Richard Repetto, analyst at Sandler O’Neill, said of Nasdaq’s venture: “It’s got an uphill battle. You have two strong incumbents in one of the few highly competitive product lines in futures.”

A top CME executive told analysts last week he was “absolutely, acutely concerned” about the threat from Nasdaq. But Derek Sammann, CME’s global head of commodities and options, added that Nasdaq was moving into a sector “with two very robust, competitive, dynamic market participants already”. ICE declined to comment.

Nasdaq will also pay a stipend to market makers committed to buy and sell energy futures above certain volumes, according to another filing. Exchanges commonly use incentives, such as volume-based rebates, to attract market participants.

Energy futures tend to generate higher fees for exchanges than financial futures tracking interest rates and stock indices. The collapse of oil prices in the past year has also spurred airlines, energy companies and hedge funds to add positions. Open interest in ICE’s Brent listing last month topped 2m contracts.

When Nasdaq announced its energy futures market in March, Mr Greifeld said he would halve costs for traders. More than a dozen brokers, proprietary trading firms and physical commodity traders including Goldman Sachs and Virtu Financial have signed on to support the exchange.

“We certainly believe monopolies are against the natural order of competitive forces,” Mr Greifeld said in March.

This article has been amended to correct the spelling of the surname of Derek Sammann.