Europe’s biggest brokers welcomed last week’s announcements on interoperability between central counterparties (CCP) but admit it is only the first step towards an efficient clearing model for the pan-European market.
EMCF, which acts as the CCP for multilateral trading facilities (MTF) Chi-X, Nasdaq OMX Europe and BATS Europe, entered into a deal last week with Swiss clearer SIX x-clear to interoperate for those venues that choose to implement it.
So far, all MTFs that use EMCF have announced their intentions to add SIX x-clear as an alternative clearer. Turquoise, a broker-backed MTF, also told theTRADEnews.com that it is in discussions with its clearer, EuroCCP, to extend clearing options available to members.
However, the London Stock Exchange (LSE), which added SIX x-clear to LCH.Clearnet, its incumbent clearing house, last December and NYSE Euronext, which uses LCH.Clearnet across its European markets, said they have no plans to add to their current CCP offerings, in light of last week’s announcement. With SIX x-clear and EMCF agreeing interoperability, and SIX x-clear sharing CCP duties at the LSE, the day on which brokers can use a single CCP for accessing multiple major European exchanges and MTFs may have moved one step closer.
“The deal between EMCF and SIX x-clear is definitely a step in the right direction,” commented George Andreadis, head of AES liquidity strategy, Credit Suisse. “However, interoperability between clearing houses will become more valuable once the CCPs that account for the majority of market share follow suit.”
Andreadis added that developments in interoperability would flourish only if accompanied by evidence of strong user demand and a business case with clear cost benefits. “The Code of Conduct has laid out some guidance on how CCPs should operate, but there is no firm regulatory or commercial imperative for these organisations to adhere to it at the moment,” he said.
Clearing interoperability provides market participants with a number of advantages, brokers said. “There are multiple benefits for the sell-side, but this essentially comes down to operational efficiency for cross-venue margining, which is increasingly important given greater fragmentation, and for ease of implementation,” Andrew Bowley, head of electronic trading product management at Nomura, told theTRADEnews.com. “Historically many brokers did not self clear right across Europe as it was complex and expensive to build clearing solutions for every European market.”
Interoperability between clearers is also seen as important because it supports competition between MTFs. But while brokers have been putting pressure on trading venues to expand their clearing options, they admit that future developments depend on the willingness of exchanges and CCPs to embrace interoperability.
“The seven equity venues on which EMCF and SIX x-clear operate (SWX Europe, SIX Swiss Exchange, LSE, Chi-X, Nasdaq OMX Europe, BATS and Euro Millennium) must bless the implementation and must be able to provide the necessary technical solutions for routing flow to multiple clearers,” said Bowley “With the will to implement this in place, the implementation steps themselves should be relatively easier.”