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Nasdaq holds out hope for energy futures marketplace profitability

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Nasdaq holds out hope for energy futures marketplace profitability

Nasdaq Inc. is winding down its NLX interest rate futures business, but it is hopeful that Nasdaq Futures Inc. will become profitable in the future even though the business is still negative in terms of revenue.

The announcement that NLX interest rate futures business is being shut down has raised some questions as to whether Nasdaq has similar plans for NFX, a U.S.-based derivatives market for key energy benchmarks. President and CEO Adena Friedman reassured participants on Nasdaq's recent earnings call that there is a "path of profitability" for NFX.

Friedman said weak open interest coupled with delays from LCH and its ability to support cross margining across the short end as well as long end has led to limited momentum in Nasdaq's NLX interest rate futures business.

Comparing NLX and NFX, Friedman said the former failed to hit 50,000 contracts in open interest in 2016, while NFX saw almost 1.5 million contracts in open interest. She attributed the high number of contracts in NFX to clients' commitment and their desire to see competition in the business.

"So it was just a totally different experience with our customers as we've looked at the juxtaposition of these two businesses, and it was time, I think, with NLX to say, you know, we don't see a path to long-term success here," Friedman said on the call. Related to NFX, however, she said the company sees "a path to long-term success, assuming we can continue the momentum in the business and that continued commitment from the customers, which is really pretty spectacular right now."

CFO Michael Ptasznik said closing NLX will result in approximately $6 million of savings for Nasdaq in 2017.