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Nasdaq OMX challenges vertically-integrated exchange model.

Nasdaq OMX has challenged moves by other exchange groups towards a vertically-integrated model of exchange and clearing house, urging investment from other trading venues into central counterparty EMCF.

Nasdaq OMX bought a 22% stake in EMCF in October 2008 after the pan-European clearer's parent, Fortis Bank Nederland, required state help from the Dutch Ministry of Finance during the financial crisis. Since the acquisition, Nasdaq OMX has used EMCF to launch central counterparty services in the Nordic cash equities markets it operates in Finland, Sweden and Denmark. EMCF also clears trades for multilateral trading facilities BATS Europe, Burgundy, Chi-X Europe and Quote MTF.

According to Hans-Ole Jochumsen, executive vice president, Nasdaq OMX, the end goal of achieving increased liquidity and cost efficiencies by lowering clearing fees would be easier achieved if more trading venues were to also take a stake in EMCF, instead of pursuing their own post-trade path.

"There seems to be uncertainty among exchanges on post-trade strategy, with some talking up the importance of maintaining a siloed trading infrastructure," Jochumsen told "We believe that using a large neutral clearing house like EMCF will attract greater volumes and therefore give us the scalability to offer lower post-trade costs to our customers, compared to developing our own capabilities internally."

In recent months major exchange groups have signalled a return to the vertically integrated trading model.

NYSE Euronext announced in May that it will ditch incumbent post-trade provider LCH.Clearnet before building its own dedicated clearing houses in London and Paris by 2012. The London Stock Exchange (LSE) has also said it is putting its own relationship with LCH under review, possibly before developing a similar vertical model with CC&G, the Italian clearing house it purchased as part of its takeover of Borsa Italiana just over two years ago.

Jochumsen added that the door is still open for other trading venues that want to take a stake in EMCF.

"We are still extending the invitation for part ownership in EMCF to other trading venues and market participants," said Jochumsen. "Our goal is to ensure clearing fees on Nasdaq OMX are the lowest in Europe, and we believe there are will be more opportunities to further reduce clearing fees in the coming years."

Despite efforts from individual exchanges to reform their post-trade infrastructure, the cost of clearing and settling in Europe has only slowly started to decrease. Euroclear UK & Ireland, the UK's central securities depository, reduced its trade-netting tariff for trading UK stocks in February following pressure from LSE CEO Xavier Rolet, while last week EMCF announced plans to reduce its equity clearing charges from 1 July to a[logical not]0.03 for the first 100,000 contracts cleared per participant and a[logical not]0.01 for over 100,000 contracts cleared. Furthermore, interoperability between CCPs is expected by the end of this year following agreement between regulators and clearing houses on inter-CCP risk management.

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Publication:The Trade
Date:Jul 7, 2010
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