The global exchange operator will continue focusing on growing its ancillary business operations, including its technology and services businesses.
One of the next frontiers in the capital markets for technology companies is regulatory compliance, and Nasdaq OMX asserts that it is poised to lead the way. With a host of existing dark pools and crossing networks throughout Europe, its operators are worried about moving them into a regulatory compliant format.
“We’re really seeing a great deal of interest from European market participants with Mifid 2 and Emir approaching,” said Ann Neidenbach, senior vice president of global software development at Nasdaq OMX. According to Neidenbach, market participants in Europe have been asking for a software solution that can help them comply with the plethora of impending regulations. “We’re providing regulatory compliant software services,” she said. “It gives them the flexibility to move as regulation changes. We also bundling that with our risk management offerings.”
One of its newest technology clients is the New Zealand Exchange. The Oceanic venue announced that it would be using Nasdaq’s X-stream technology to underpin its trading platform. The new platform will handle the trading of equities and derivatives securities and is scheduled to be rolled out at the end the third quarter or early fourth quarter.
Like many of its global exchange counterparts, Nasdaq OMX has made an ongoing shift from strictly being a trade matching venue to one that provides a full range of technology and services for market participants. Nasdaq’s technology business, which includes market technology products for broker-dealers and regulators and corporate services, makes up about a quarter of overall revenues. It doesn’t including market data and co-location services as part of its technology operations.
The company’s technology business has been steadily growing in recent years. In 2010 and 2011 it generated $152 million and $183 in revenue, respectively. It is projected to grow to $200 million in 2012.
Nasdaq has also been continually updating one of its key offerings, its Genium INET system. It recently announced a deal with global interdealer broker ICAP, whereby its BrokerTec electronic fixed income business would use a modified version of the Nasdaq OMX Genium INET system. The new system provides low latency and high throughput, as well as built in capabilities for manual traders.
The platform is touted as one of the fastest and fully functional trading systems in the world. It provides the backbone for the Singapore Exchange’s Reach trading system, which is said to be the fastest in the world, as well as underpinning the system powering the Australian Securities Exchange.
Nasdaq provides core updates to its Genium INET system several times per year, and also continually adds functionality as it adds new clients. “We build new functionality into the core and then make it available for other clients,” said Neidenbach. “We always look to add new features.”
As many of its services are aimed at the broker-dealer community, the company has found it necessary to build and development relationships with its client base.
“During the first quarter, we continued to expand our business to broker-dealer relationships around the globe,” said Robert Greifeld, Nasdaq chief executive during a conference call. “They are adapting to changing business needs and certainly evolving regulatory environments. Our acquisition of FTEN has substantially expanded our dialogue with broker-dealers on risk issues. And we are excited about the growth opportunities that are available to us in this sector.”
In December 2010, Nasdaq acquired FTEN, which provides risk management technology through the screening of the credit risk of traders before they trade. Nasdaq also acquired Smarts, an Australian market surveillance technology provider, in July 2010. Smarts develops technology which records market movements for surveillance purposes. The moves were part of a strategy employed by several exchange operators, including rival NYSE Euronext, to diversify their operations outside the traditional core business of matching trades.
Nasdaq OMX also announced that it will launch a third options market, Nasdaq OMX BX Options, which will utilize the existing trading rules from its Nasdaq Options Market and be geared toward the retail investor. The new venue will use the self-regulatory license that was recently surrendered by the Boston Options Exchange. It would be the third to operate under the Nasdaq umbrella, adding to its existing options exchanges, Nasdaq Options Market and Nasdaq OMX PHLX.