Nasdaq hopes to capture 10% of the energy
market in the next two years with its new energy exchange
Nasdaq Futures (NFX) but is there space in the market for a new
The exchange group will on Friday unveil
its long-awaited push into the energy market, launching with 26
products as it goes up against incumbents The Intercontinental
Exchange and CME Group which dominate the US and European oil
The new designated contract market (DCM)
will offer 26 products across futures and options on key energy
benchmarks, including oil, natural gas and US power.
Efforts at the exchange group have been
ramping up with Nasdaq confident in its hopes for the
FOW spoke to chief executive of NFX and
head of US commodities for the exchange group Magnus Haglind on
Wednesday who said:
"We are targeting a 10% market share in the first 18-24 months.
I think this is achievable."
Some have questioned, however, whether
there is room for a new player in the global energy derivatives
A London-based business development head
told FOW: "Is there space for any new exchange that has
'look-a-like’ products? Historical launches of
Liffe US and NLX say no. However, if you have serious end
users, such as banks supporting you, it 'may’
Liffe US was the London-based exchange's
bid to break into the US up against CME among others but it was
rolled into existing US and European platforms after ICE bought
NLX is Nasdaq's European interest rate
futures exchange which reached some 10% of daily European
volume in 2014 but has since seen trading activity dwindle.
A former senior director for interest
rates and foreign exchange told FOW that, while the NFX launch
is making ripples, "the market simply does not need another
A business development head from one of
Nasdaq’s partners for NFX said: "I think market
participants will see some good exposure to the market through
NFX. We have high hopes, as we always do with new exchanges,
but it will struggle, especially in Europe and London.
"It seems to have been spun that the main
interest is from the US on this, especially on the oil side. In
London there seems to be little interest in trading on the new
exchange. At management level there’s a good level
of awareness, but this is yet to trickle down to trading," he
Another source suggested that success of
the new exchange will have to be considered on a regional
basis, due to the products being offered and the difference in
geographical appetite for them, and suggests that this may have
affected the group’s approach to development of
"I think that Europe, and London, are
being seen as secondary markets – NFX
isn’t looking to tap these markets first. However,
oil traders will trade as and when they wish, so with banks and
traders on board, there could be a different story," he
Head of research at Marex Spectron, Georgi
Slavov, takes a pragmatic view: "Most of the energy markets ,
especially the one Nasdaq is targeting, are liquid enough to
accommodate a new entrant... Ultimately the marketplace will
choose which venue offers the best balance between execution
speed, cost and other added value services."
A managing director in futures at a large
investment bank added, "There is definitely interest in NFX.
The CME is not the most popular after what they did with market
data. I think they may have underestimated the extent to which
their clients want to give them a poke in the eye."
In late 2013, the Merc announced plans to
introduce market data fees in a phased programme that required
data distributors to pay for market data.
The decision enraged prop traders, who
argued that the fees could add more than $1,000 a month to
their trading costs, adding that it could cause firms to stop
using the CME, or quite trading all together.
A contentious issue surrounding the new
exchange is Nasdaq’s commitment not to charge
trading fees for at least the first nine months of
The cost of trading could play a crucial
role in the future of the fledgling platform, with the lack of
fees expected by some to boost trading levels in the short term
While seemingly a great marketing play for
NFX, some market players are not convinced that this will be
enough to drive volumes, and question what will happen at the
end of the fee-free period.
A source told FOW: "London will only trade
on NFX if there is a robust market; if the pricing
isn’t right then it won’t work
– being free is not enough."
A London-based business head questioned
the longevity of the exchange after the fee-free window:
"Everyone wants cheaper prices, but customers will go with
Marex's Slavov said, "Execution costs are
an important element when choosing a trading venue, but it is
rarely the only one. It is important to strike the correct
balance between cost, speed, reliability and industry
"The job for Nasdaq will be to translate
the goodwill they have built into transactions," he added.
The business head continued: "As we saw
with NLX, you can give something away for nothing, but
it’s not enough," warned another FOW source.
trading facility, NLX, in 2013 launched with an incentive scheme for
market-makers and founding members. Those firms that joined
the exchange, or were near completion of their connectivity
before the end of June (after the May 31 launch), paid no fees
during the month and received a full rebate for all fees up
until the end of the year.
"There is an element of fatigue after the
buzz of NLX – at the time there was a great degree of
excitement in London – it was a UK product, a UK
exchange that wasn’t Liffe. London seems a bit
detached from the fanfare surrounding NFX," said a London-based
Speaking at a media event in London in
mid-July, Steffen Köhler, chief operating officer of The
European Energy Exchange, said: "NFX will face the same issues
in bringing new contracts as the incumbents as they are trying
to tackle the same issues."
"The launch is good for the market," said
Last week the exchange said that 16 brokers have been approved as members for
the new US-based energy exchange, naming 14; 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, Societe Generale and
The group has been aggressively signing up
partners over recent months and has been forging ahead with
testing after winning key backing from market-makers, banks and
The exchange group’s energy
offering will use connectivity from trading software firm, Trading Technologies, once it begins
operations, as announced at the FIA Europe IDX conference
in London last month.
Nasdaq also inked a deal with London-based Stellar
Trading which saw the latter commit to provide access
to the NFX platform once it goes live.
Haglind told FOW in the days leading up to
the launch that he is encouraged by the fact that more than 40
firms have now registered as brokers for the exchange. "We have
a broad spectrum of participants, especially when it comes to
key or specialist contracts, and I think that this will serve
us well," he added.
The exchange group has also been
transparent about its plans to potentially expand the remit of
the platform after launching.
Speaking to FOW on Wednesday, Haglind said that expansion remains firmly on
the horizon, and while a number of assets are being
considered, no decisions have been made yet. "We need to prove
the concept first," he said
While it seems there is interest from the
market, it remains to be seen how much trading the new platform
will see, especially from European and London-based market
The approach to fees is contentious. Some
see it as a gimmick and expect claims over the success of the
new exchange will be skewed during the fee-free nine
While it is difficult to predict the
success of the new exchange, what is clear is that eyes will be
firmly on the exchange group’s latest project on