Nasdaq has announced the launch of its Custom Basket Forwards solution in a bid to address the market’s demand for more simple and efficient methods to handle equity exposures.
Empirically, the offering allows clients to use some of the elements of OTC-derivatives (including equity swaps), while reaping the benefits of utilising standardised contracts traded on the regulated market and central counterparty clearing.
Speaking to The TRADE, Julian Butterworth, head of sales, European equities and derivatives for Nasdaq European Markets, said: Investors are showing an increasing appetite for customised equity exposures that mirrors their stock portfolios; however stringent regulation along with operational complexity of OTC products limit their feasibility.
“Against this backdrop we have seen strong demand for Nasdaq’s Custom Basket Forwards from our clients to create customised equity baskets which are CCP cleared on a regulated market.”
Custom Basket Forwards allows users to create a forward contract on a customised equity basket – defined by return type and currency, and taken from more than around 1700 stocks across 15 countries in Europe.
Once baskets have been defined, a cash settled forward contract is issued in Nasdaq’s trading and clearing systems, the business explained. Here, customised baskets serve as the underlying instrument. Nasdaq Clearing acts as the counterparty in the transactions.
Alessandro Romani, vice president, head of European derivatives at Nasdaq, highlighted the strong demand from clients for the product, explaining that “bilateral risk, bilateral dependency in liquidity provision, and costs associated with regulation have all been contributing factors to the vast market demand for a simpler and more cost-efficient way to manage tailored equity exposures”.
“With the introduction of Custom Baskets Forwards more clients are given access to a simple and efficient solution for ESG and climate investments, thematic investing, ETF replications, investing in tailor-made indexes, and equity financing.”
Read more – G20 OTC derivatives reforms stall in filling remaining gaps
Nikos Georgelis, portfolio manager, at Atlant Fonder, highlighted that the offering is simple, flexible, and cost-efficient.
“I am really thrilled about the introduction of a very strong alternative to OTC-derivatives such as equity swaps. Through the launch of Nasdaq Custom Basket Forwards, we are now offered a great instrument that provides us with a simple, flexible, and cost-efficient way to gain tailored exposures via a standardized derivate contract that is centrally cleared and traded on a regulated market.”