Nasdaq OMX (NASDAQ:NDAQ) is ready to challenge NYSE Euronext’s (NYSE:NYX) Liffe exchange and Deutsche Boerse for market share in the European derivatives market.  The two currently hold a duopoly, accounting for over 90% of trading for European contracts. Nasdaq will try to break the stronghold with the launch of its London-based interest rates derivatives trading platform, NASDAQ OMX NLX, in the first quarter of 2013. The platform will initially offer futures based on short sterling, U.K. government bonds, and medium-term German government debt. Our price estimate of $29 on Nasdaq OMX’s stock, is about 25% above the current market price.
The proposed merger between NYSE Euronext and Deutsche Boerse was blocked by the European Union earlier this year, prompting several competitors to enter the market. CME Group (NASDAQ:CME) has also announced intentions to set up a derivatives exchange, CME Europe, in London. The platform is expected to launch next year and will offer currency futures and interest rates products. (For more details on CME’s incursion, please refer to CME Expands In Europe And Heads To $57 Fair Value)
- US Equity Options Volumes Surge In July For NASDAQ
- NASDAQ’s Cash Equity Volumes Plunge In July
- NASDAQ’s Fixed Income Volumes Decline In July
- Acquisitions And Operations Drive NASDAQ’s Second Quarter Revenue
- NASDAQ’s Fixed Income Volumes Continue to Decline In June
- NASDAQ Earnings Preview: Transaction-Based Revenues Likely To Be Affected By Decreasing Market Share
With increased competition, it will be difficult for Nasdaq to gain market share at the pace it desires. The company will look to capitalize on LCH.Clearnet Group Ltd’s customer base to establish a foothold in the market. LCH is currently the largest clearinghouse in Europe for interest rate swaps and will be used by the NLX platform for clearing and settlement services.
Nasdaq currently operates NASDAQ OMX Nordic and NASDAQ OMX Baltic in Europe that offer derivative trading and clearing services. European options and futures volume for August fell 33% year-on-year, but showed a 15% improvement over July’s figure.  We expect a modest growth rate in trading volumes over the next few years as the new platform finds its feet against the incumbent giants.
You can gauge the effect of a change in forecast on the company’s stock price by modifying the interactive graph above.Notes:
- Nasdaq UK Derivative Market to Offer German Bund, Euribor, Bloomberg, 6th September, 2012 [↩]
- NASDAQ OMX 2012/2011 Volumes and Revenue Capture, Press Release, Nasdaq [↩]