As reported by the Reuters on Wednesday, Nasdaq OMX Group Inc.’s (NDAQ) majority-owned International Derivatives Clearing Group (IDCG) has added Newedge USA, LLC, the world’s largest multi-asset brokerage and clearing firm, for offering a central counterparty clearing of Interest Rate Swap (IRS) products. IRS, a significant financial risk management tool, has the largest $400 trillion market in the over-the-counter (OTC) derivative sphere.
Nasdaq continues to perform and expand its net derivatives trading and clearing exchange platform on a strong base. In Dec 2008, Nasdaq acquired a majority interest in the IDCG. In Jan 2009, the company acquired a 22% stake in European Multilateral Clearing Facility N.V., a leading European clearing house now used for all Nordic transaction services.
In Jan 2010, Nasdaq increased its stake in Agora-X to 85% and on Mar 8, 2010, the company purchased North American Energy Credit and Clearing Corporation (NECC). Nasdaq now also intends to offer central clearing in its U.K. power derivatives market in 2010.
Through the addition of Newedge, Nasdaq continues to expand its clearing house and OTC operations, particularly enhancing its competitive edge over its derivatives-focused rivals CME Group Inc. (CME) where Newedge is already a clearing member, IntercontinentalExchange Inc. (ICE) and LCH.Clearnet. It will also help increase efficiencies through cost-savings, transparency and liquidity. Hence, the addition of Newedge appears appropriate for the company.
On the other hand, the clients of Newedge can continue to execute IRSs in the well-established OTC market while reducing counterparty risk by simultaneously navigating their positions to IDCG, which will also allow segregation of funds protection.
Overall, we believe the ongoing restructuring developments are crucial to Nasdaq, given the company’s competitive environment in the backdrop of the current favorable economic trends that could provide more opportunities and leverage.
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