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Capital Markets

Ex-Nasdaq trading chief reveals exchange's fixed-income ambitions

Eric Noll, in one of his last wide-ranging interviews as head of Nasdaq OMX Group’s trading business, revealed the exchange’s grand ambitions in fixed-income trading, including European rates, single-treasury futures and floating-rate notes.

Before his surprise departure to become president at brokerage firm ConvergEx, announced on Monday, Eric Noll was the driving force behind Nasdaq’s expansion into fixed income and seen as a likely successor to CEO Bob Greifeld, who has been in charge since 2003.

When Euromoney visited the exchange in New York in early November, Noll, the then executive vice-president of transaction services,  waxed lyrical about new opportunities and challenges triggered by shifts in technology, regulation and market practices, having most recently engineered the $750 million acquisition of bond trading platform eSpeed from BGC Partners in April.

“As the Fed starts to taper and the interest-rate environment starts to change, the short end of the Treasury curve may become more active and we want to be there to facilitate trading,” said Noll. “We could also reduce the volatility seen in T-bills during the recent government shutdown by being a central point for price discovery and liquidity.”

Eric Noll, former Nasdaq executive vice-president

The firm has tried to move into businesses where there is a demand from the exchange group’s member firms, which are pressured to increase products in an environment where operational costs and new regulations are increasing. “The older model was that the customer called you and you warehoused the risk, but under the new capital rules that is not going to be sustainable,” Noll said. “It requires clearer product. It requires firms to access and find liquidity other than their own balance sheets and that opens up roles for us.

“We are now focused on what can we do to assist broker dealers looking for deep pools of liquidity, better price discovery and low-cost centrally cleared transaction venues of the products they need to provide their own customers.”

The acquisition of eSpeed is integral to this effort, he says, adding: “We’d been looking at eSpeed for a while, including whether we could build something similar, as it hits our sweet spot in terms of central clearing, providing data feeds, and a central limited order book – like our other transaction platforms.

“We can improve the technology performance of the platform and introduce new products to meet the demand of the dealer community.”

As well as buying eSpeed, Noll had also been behind the launch of Nasdaq NLX, a platform for trading interest-rate derivatives, in May. The launch of NLX – a competitor to Liffe and Eurex in European interest-rate futures – is a key part of Nasdaq’s diversification effort.

“There you can trade the entire rate curve on the one platform as opposed to just the short end [at Liffe] and long end [at Eurex], and we embraced horizontal clearing through LCH,” Noll said. “It’s a good start to competing in European rates.”

In the first half of next year, the former Philadelphia Board of Trade – now NFX – the firm acquired in 2008 will launch single-treasury futures.

“These will be futures on the current benchmark on-the-run Treasury – as compared with interest-rate futures, which use a basket delivery, which may not be the benchmark bond,” he said. “Rather than compete with other markets directly, we’ve found an area to innovate where we can add value.”

The roll is one example – the difference between a new US Treasury note and the amount it starts trading at before launch – on a when-issued basis.

“At the moment, trading the roll requires picking up the phone and asking for the price,” said Noll. “We can automate that whole process, bring in more liquidity and transparency, and save costs.”

Nasdaq also hopes to automate T-bill trading through eSpeed by the end of the first quarter next year.

Trading US government floating-rate notes is likely to be on Nasdaq’s radar too next spring. The ultimate goal for Nasdaq is to create offerings across NFX and eSpeed, and eventually NLX. “There is also the potential to explore global opportunities in other areas like sovereign debt and even swaps,” said Noll.

Thanks to the exchange’s diversification efforts over the years, Nasdaq is now seen as more of a capital-markets conglomerate than a core exchange, says Anshuman Jaswal, a senior analyst at Celent.

“Around three-quarters of its revenue will come from non-transaction-related services, including businesses that offer cloud computing, data feeds, pre-trade risk management and market surveillance, global connectivity, corporate solutions and index calculation.”

Noll’s successor will no doubt have big shoes to fill.

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