Pan-European multilateral trading facility (MTF) Chi-X Europe has become the latest trading venue to announce post-trade interoperability, with four central counterparties (CCPs) supporting the service, including Dutch clearer EMCF which had previously declined to join similar initiatives.
Subject to regulatory approval, Chi-X Europe will offer its members the ability to select from four CCPs – EMCF, EuroCCP, LCH.Clearnet and SIX x-clear – from 1 January 2012. The service will be available for all equities traded by Chi-X, except for Spanish stocks.
Currently, a broker that buys Vodafone shares on the London Stock Exchange (LSE) and later sells them on Chi-X will create two open positions with different CCPs –LCH.Clearnet or SIX x-clear for the LSE and EMCF for Chi-X. In future, the broker would be able to eliminate such exposures by using a single clearing house – in this case LCH.Clearnet or SIX x-clear – thereby reducing costs and increasing efficiency.
“One of the key frictional costs in European equity trading is clearing,” said Chi-X CEO Alasdair Haynes. “If you can create true interoperability in Europe this will undoubtedly grow the amount of overall liquidity in Europe.” Haynes added that there is now “enormous pressure on domestic clearing houses like Eurex to provide their trade feeds to venues that wish to offer interoperability”.
LCH.Clearnet – which is reportedly in exclusive talks with financial information provider Markit over a potential takeover – clears equity trades for the LSE as well as for NYSE Euronext's domestic exchanges in Paris, Brussels, Amsterdam and Lisbon. SIX x-clear is owned by SIX Swiss Exchange, while EMCF, which is part owned by Nasdaq OMX, is the clearer for Scandinavian markets, as well as MTFs BATS Europe, Chi-X Europe, Burgundy and TOM. Eurex Clearing is the CCP owned by German exchange Deutsche Börse.
BATS Europe – which is seeking to finalise a merger with Chi-X Europe by the end of this year – unveiled its own preferred interoperating service on 29 July, including all the CCPs involved in Chi-X's service with the exception of EMCF. Under BATS' scheme, trading participants on both sides of the trade must nominate the same preferred clearer, with EMCF acting as default CCP if the brokers do not agree.
However, in a statement released today EMCF said it will embrace interoperability from 1 January 2012, indicating that BATS Europe and Nasdaq OMX would be able to offer four-way interoperability from that date. The CCP also said it had “intensified” discussions with SIX Swiss Exchange.
“The time is now to take the next step in opening up the European clearing landscape,” said Jan Booij, CEO of EMCF. “Interoperability will make European markets more efficient and is a tool to open up the clearing and settlement silos in Europe. Supported by clearing participants and trading firms, EMCF will enter into a strategic dialogue with the major European exchanges to enable user choice and consolidation of clearing volumes in a single CCP.”
EMCF had previously stated it was unwilling to participate in interoperability arrangements in the absence of any likelihood that Europe's major exchanges would provide the necessary trade feed access to support full post-trade choice. EMCF has also said it would introduce a new fee tiered schedule by 1 October 2011 that will reduce costs by more than 50% for large participants. The clearer had previously cooperated fully with the three other pan-European CCPs in establishing a common framework for interoperability and collateral management that would be acceptable to Dutch, Swiss and UK regulators.
UBS MTF, the dark pool operated by Swiss broker UBS, has also said that it has reached an agreement with EMCF and LCH.Clearnet to also offer four-way interoperability. UBS MTF already offers clearing choice via EuroCCP and SIX x-clear and has said it will add EMCF and LCH.Clearnet “as soon as they are ready” and subject to regulatory approval.
Robert Barnes, CEO of UBS MTF, said, “Full interoperability allows 100% predictability that a matched order will clear through the trader's CCP of choice.”