NASDAQ OMX Derivatives Markets

What does NASDAQ OMX Derivatives Markets do?

NASDAQ OMX Derivatives Markets (NASDAQ OMX DM) offers trading and clearing of derivatives and is a secondary name for NASDAQ OMX Nordic Exchange Stockholm AB. NASDAQ OMX DM is a central counterparty and clearing organisation for derivatives and can, with reference to the risks this entails, affect the stability of the financial system.

 

Buyers of derivatives are dependent on the seller being able to supply the underlying security, or the equivalent amount, when the derivative matures. The longer the time to maturity for the derivative instrument, the longer the buyer will be exposed to the seller. This creates substantial risks for the participants. A clearing organisation therefore usually goes in as intermediary, and thereby becomes a central counterparty. This means that the clearing organisation becomes the legal seller towards all buyers and the legal buyer towards all sellers. A buyer of a derivative instrument therefore has no credit risk with regard to the original seller, only with regard to the clearing organisation. This means that a market participant does not need to assess all of the other participants’ creditworthiness; it is sufficient to closely follow how the clearing organisation manages its financial risks and its financial strength. The risks are concentrated on the clearing organisation.

 

In other words, as central counterparty NASDAQ OMX DM takes on risks. If one counterparty in a transaction is unable to meet its commitments, NASDAQ OMX DM must do so instead. NASDAQ OMX DM limits its risks in several ways. For instance, it never takes any positions of its own, but acts as legal counterparty only when there are both buyers and sellers. Financial risks to NASDAQ OMX DM only actually arise if a member is unable to meet its obligations. However, customers trading in derivatives must pledge collateral, which reduces the risks even more. In addition, NASDAQ OMX DM as a central counterparty also has its own financial assets and insurances to cover potential losses. 

 

The Riksbank and NASDAQ OMX DM

The Riksbank oversees NASDAQ OMX DM in its role as central counterparty and clearing organisation for trade in derivatives. As part of this oversight, the Riksbank assesses NASDAQ OMX DM’s activities as central counterparty according to international standards. The assessment is made jointly with Finansinspektionen, the Swedish Financial Supervisory Authority. NASDAQ OMX DM is assessed in accordance with the European Central Bank (ECB) and the Committee of European Securities Regulators (CESR) Recommendations for Central Counterparties in the European Union, May 2009. Read more about the assessment and recommendations via the links below.
 
For further information, see the link to the NASDAQ OMX website below. A definition of derivatives can be found in the glossary via the internal link below.

DOCUMENTATION
 
Assessment of NASDAQ OMX Derivatives Markets as a central counterparty, 2009 | PDF icon 3 Mb
INTERNAL LINKS
 
Derivatives, Riksbank’s glossary
EXTERNAL LINKS
 
NASDAQ OMX
Recommendations for Central Counterparties in the European Union May 2009 | PDF icon

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LAST REVIEWED
20/05/2010