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Clearing Amp Settlement
Nasdaq presses ahead with forex plan
From the Financial Times of Mon, 27 Oct 2014 15:52:13 GMT

Nasdaq is to press ahead with its long-touted plans to clear some foreign exchange instruments in Europe as local regulators finalise mandatory rules for trading off-exchange derivatives.

The US-Nordic group has lodged an application in recent weeks with European regulators for approval to clear a range of non-deliverable forwards (NDFs) and options, according to two people familiar with the application. Nasdaq declined to comment.

The move illustrates how the foreign exchange market is rapidly changing in the wake of G20 reforms to the global financial markets, intended to monitor risk and bolster against systemic weakness.

It is also being seen as a test case as it would be the first time a clearing house that has been authorised to clear under new incoming rules has sought to extend its licence. European authorities are currently assessing all European clearing houses and have approved 13 venues. Nasdaq was the first but was mandated only to clear equity, interest rate and commodity derivatives.

Policy makers have sought to have more types of derivatives backed by collateral and traded through clearing houses. Historically, the forex market has been conducted privately between banks, with little insurance posted between counterparties to back their trades.

Nasdaq had been openly discussing the move for more than a year with banks and institutional investors, its main customers. However, market participants have been more focused on preparations to clear interest rate and credit default swaps before the European mandate next year.

While politicians have exempted certain kinds of FX trading from the clearing mandate, US regulators included other types of trades, notably non-deliverable forwards and options. Global regulators have been slower to issue mandates to clear foreign exchange derivatives amid concerns over how it would affect the world’s largest and most liquid market.

Non-deliverable forwards trading accounted for about $127bn of the $5.3tn traded daily on global currency markets in 2013, although volumes have grown rapidly in recent years.

The European Securities and Markets Authority, the pan-European regulator, issued its market consultation to discuss draft technical standards for clearing forex NDFs at the start of October, some three months after other off-exchange asset classes. The discussion period closes on November 6.

If its application is successful, Nasdaq would enter a clearing market dominated by the LCH.Clearnet and also face competition from CME Group’s European operation.



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