Nasdaq OMX CEO Looks To Tap Into Electricity Trading

Nasdaq OMX, famed as a marketplace for tech stocks, now wants to let investors buy and sell the electricity that powers the world's software, mobile phone and computer-chip companies.

The New York-based exchange company is expanding power-trading operations on both sides of the Atlantic, part of a broader push into physical commodities that could bring a move into the natural gas market.

Commodities remain a small area of business for stock-centric Nasdaq OMX, but represent the faster-growing portion of its business, according to Chief Executive Bob Greifeld.

The company has bought up a string of energy-focused properties since the beginning of the year, and Greifeld will pitch Nasdaq OMX's global commodities strategy Friday when the company reports first-quarter results.

"At the end of the day we certainly believe that the derivatives aspect of our operations, inclusive of commodities and financial derivatives, will be a larger percentage of our operation tomorrow than it is today," Greifeld said in an interview.

Derivatives trade, underpinned by Nasdaq OMX's U.S. options franchise, made up 15% of $369 million in exchange revenues for the fourth quarter of 2009. Commodities contributed about $10 million, according to the company.

Exchange operators like Nasdaq OMX are working to move beyond stock trading, where profits have shrunk thanks to a cabal of electronic, bank- and trading firm-supported platforms now dotting the U.S. and Europe.

Nasdaq OMX this week moved to shut down its own electronic platform in Europe, which failed to capture business after 18 months.

While archrival NYSE Euronext (NYX) readies a move into fixed-income futures in the U.S. and the London Stock Exchange Group plc (LSE.LN) seeks to broaden its clearinghouse capacity, Nasdaq OMX seeks diversity via electricity markets, building on its purchase of a Nordic power derivatives market in 2008.

It's a fractious and sometimes volatile market where participation has waxed and waned alongside the broader economy. Nasdaq OMX is looking for a role alongside IntercontinentalExchange Inc. (ICE), CME Group Inc. (CME) and the Nodal Exchange, which also provide services.

Nasdaq OMX's Nord Pool platform, gained via the acquisition of the OMX Nordic Exchange group, brought trading and clearing technology that the company is now applying in the U.K. and the U.S.

"When you look at the U.K. power market, whether it be spot or derivatives, there's no direct analogy to what we're proposing to build," said Greifeld. The spot power market in the states, he said, remains "unorganized" and largely un-cleared.

Greifeld said trading is expected to pick up on its four-month-old London-based N2EX power market next week as five of the six biggest domestic producers will be hooked up to the exchange.

Derivatives contracts tied to U.K. electricity prices are seen launching in the late second quarter or early third quarter of the year, and Nasdaq OMX is building out facilities in London to support the effort.

Traction in U.K. power trading could provide an entry point to the country's natural gas market, Greifeld said, which is estimated at three times the size of annual domestic electricity consumption.

"Clearly we'll look to the gas market in the U.K. as an add-on," he said. "That's not a 2010 effort, but certainly we could see it in 2011, 2012."

Greifeld also hopes to expand Nord Pool's share of power trading in Germany while boosting its carbon-trading business, which trails the sector-leading European Climate Exchange.

In the U.S., where Nasdaq OMX recently bought Chicago-based North American Energy Credit & Clearing, Greifeld said the focus will remain on physical energy trading for the time being.

-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117; jacob.bunge@dowjones.com

(Mark Peters contributed to this article.)

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