DERIVATIVES-NEX SEF gains CFTC approval

By Helen Bartholomew

LONDON, April 21 (IFR) - NEX Group has received CFTC approval for a new swap execution facility, NEX SEF, which will offer trading in non-deliverable FX forwards from late May.

NEX SEF will initially offer seven emerging market NDF currencies, enabling clients to comply with Dodd-Frank requirements when trading the instruments over EBS, an electronic FX and fixed income platform that was retained by NEX following the group’s £1.28bn sale of ICAP (Frankfurt: A0BKYB - news) 's voice and hybrid broking operations to Tullett.

The initial set of NDF products comprises Brazilian Real, onshore Chinese renminbi, Philippine peso, Indonesian rupiah, Taiwan (Taiwan OTC: 6549.TWO - news) dollar, Indian rupee and Korean Won.

For NEX, the launch is viewed as a starting point for the SEF, which ultimately has cross-asset ambitions. The group’s expansion plans will initially focus on broadening the range of NDF currencies, particularly in the LatAm region.

Further out, NEX SEF is considering the addition of other derivatives products, such as interest rate swaps, which could help to optimise trading processes for clients using many of the risk management businesses that sit in the NEX Optimisation unit.

For example, the Reset business enables banks and dealers to offset basis risk in their trading portfolios by identifying packages of derivatives transactions that could reduce or eliminate underlying risk positions.

By expanding the range of products traded on NEX SEF, those replacement trades could be executed in a more efficient manner, linking trading directly to other Dodd-Frank requirements such as central clearing and trade reporting.

"NEX SEF offers regulatory compliant and technically efficient trading of NDFs,” said Seth Johnson, CEO of NEX Markets.

NEX customers will be able to trade in whatever environment is most appropriate to them based on their regulatory requirements or specific needs, Johnson said.

Approval of the platform takes the total number of CFTC-authorised SEFs to 24 and puts NEX in direct competition with ICAP US, which the firm sold to Tullett as part of the deal that closed last December.

The ICAP SEF, one of two that were offloaded in the sale, is the most active according to FIA data, trading US$124.8trn of swaps notional since its 2014 launch, including US$5.6trn of FX products. ICAP Global Derivatives Limited (IGDL), a London-incorporated entity that covers G3 rates products, was also sold to Tullett in the deal. (Reporting by Helen Bartholomew)