Nasdaq OMX makes clearing house pledge

Nasdaq OMX has moved to reassure investors trading on its exchange in Europe that their funds cannot be touched by administrators in the event of a broker default.

The transatlantic exchanges operator put the pledge at the heart of an overhaul of its clearing default fund. The group is switching to a member-financed default fund for its Nordic business on March 1 in preparation for sweeping incoming European legislation that will elevate the role of clearing houses in safeguarding the world's financial system.

The issue of segregation of investors' collateral, or insurance against their trades failing, has become a key topic following last October's collapse of MF Global, the US futures broker. Senior US management, led by former US senator Jon Corzine, have said they do not know what happened to $1.2bn of client funds while investor anger is mounting that three months on, the administrator of the UK division of the group has yet to return any customer funds.

Nasdaq OMX's move comes as European authorities prepare this week to put the final touches to regulation intended to strengthen financial markets. Countries of the G20 have pledged to move more of the $6trn over-the-counter (OTC) derivatives market on to recognised venues and through clearing houses. European governments and policymakers are expected to meet this week to give their blessing to the region's response - legislation called the European Market Infrastructure Regulation.

Many MF Global customers have found themselves unable to access their collateral posted for trading on exchanges. A significant number have subsequently discovered their funds were also held in unsegregated accounts and may not have all their assets returned as they are classified as unsecured creditors.

Hans-Ole Jochumsen, president of Nasdaq OMX Nordic, told the Financial Times that investors effectively entered into a direct legal relationship with the clearing house and could post collateral knowing it was completely protected from a clearing members' default. "There is no chance of being mixed up with unsecured creditors," Mr Jochumsen said. About 400 customers were using it, he added.

Nasdaq OMX Nordic has been upgrading both its strategy and the IT risk management system that powers daily operations to attract the bulk of OTC trading in the Nordic region and fend off competition from LCH.Clearnet, the London-based clearing house, and Eurex, the clearing house of Deutsche Borse. Nasdasq OMX Nordic was also one of the few in the world to have a default fund wholly financed by the exchange group.

It has already applied for recognised overseas clearing house status from UK authorities, which would allow it to boost its physical presence and marketing efforts in the UK. Bob Greifeld, chief executive of Nasdaq OMX, told Bloomberg in Davos last week that the exchange was planning to grow organically, with a couple of small acquisitions. He was not interested in buying the London Stock Exchange, he added.

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