NASDAQ OMX eyes credit derivatives

NEW YORK (Reuters) - Nasdaq OMX Group Inc (NDAQ.O: Quote, Profile, Research) sees a role for itself in the credit derivatives market at a time when the subprime crisis has highlighted the importance of centralized exchanges, its president said on Friday.

"The subprime crisis is the best advertising the exchange industry has had in a very long time," Magnus Bocker told the Reuters Exchanges and Trading Summit in New York.

Bocker, who headed up the Nordic OMX before its acquisition by the Nasdaq in February, said the credit derivatives market is a potential source of growth for its U.S. and European operations.

Unlike stocks that trade and clear through a central location, OTC securities such as credit derivatives and mortgage-backed securities trade through loose networks of broker dealers who interact directly with one another.

During the credit crisis, debt markets stalled as firms worried about their counterparties' ability to pay for trades and deliver securities. Under an exchange model, the fear of counterparty default is greatly reduced because the exchange acts as the counterparty of each trade and settles each transaction.

While the traditional exchange model may not work with some complex derivatives, Bocker said his exchange hopes to increase access to credit derivatives by operating pools where people can buy and sell derivatives and use Nasdaq OMX to clear the trades.

Major investment banks are working to create a centralized clearing house for credit derivatives that would help reduce counterparty risk and lower the amount of capital banks must provide to cover their risk exposure.

Other exchanges are also vying to enter the derivatives market. At the Reuters Summit on May 5th, NYSE Euronext (NYX.N: Quote, Profile, Research) Chief Executive Duncan Niederauer said that his exchange was hoping to be more involved in the credit derivatives market.

Bocker did not say how Nasdaq OMX would structure its derivative trading model, or whether it was working with other organizations in creating a clearing system, saying only that the company was participating in many discussions.

(Reporting by Steven Bertoni; Editing by Brian Moss)