Reported plans for a single eurozone clearing house for securities trades by a working group led by the Banque de France could counter attempts to unify Europe’s post-trade environment and reflects growing protectionism in the region.
One of the working group’s proposals, according to news reports, is to split up UK/French central counterparty (CCP) group LCH.Clearnet and merge the French part with Eurex Clearing, the post-trade division of European derivatives exchange Eurex, a joint venture between Germany’s Deutsche Börse and Switzerland’s SIX Swiss Exchange.
This would create a dedicated CCP for euro-denominated transactions, with non-eurozone countries, such as the UK, Switzerland and much of northern Europe, using a range of alternative providers. Some believe the plans are designed to prevent the domination of European clearing by either the UK or the US.
In October, US post-trade provider DTCC made a EUR 739 million offer for LCH.Clearnet, and in February, a UK inter-dealer broker, ICAP, admitted its participation in a rival consortium of brokers.
“We expect to see a level of consolidation in pan-European equities clearing but I would hope that it would be based on competition and result in the emergence of the strongest, best capitalised CCPs that can best service the constituents in the industry,” Miranda Mizen, senior consultant at research and advisory firm TABB Group, told theTRADEnews.com. “Divisions within Europe would go against the spirit of MiFID and may not necessarily produce the best long-term benefits.”
Phillip Silitschanu, senior analyst at fellow research firm Aite Group, has detected growing protectionism among European countries, which is in turn affecting efforts to forge more CCP links. The European Commission introduced a Code of Conduct for Clearing and Settlement in 2006 in a bid to encourage post-trade interoperability, but progress has been limited. A memorandum of understanding announced earlier this month by Swiss clearer SIX x-clear and EMCF, which clears for three European multilateral trading facilities, is a rare example of collaboration.
“Opening the borders to interoperability in clearing have moved very slowly and there are a lot of hindrances, but it was moving in the right direction,” said Silitschanu. “In the last month or two, I would say the feeling has almost gone the opposite way. All of a sudden, people aren’t concerned about interoperability, they are more concerned about keeping their part of the clearing business inside their borders or at least their continent.”
Silitschanu sees the alleged French plans as a further attempt to prevent DTCC gaining complete control of LCH.Clearnet. While acknowledging protectionism is part of the reason for these bids, he feels clearing revenue is a bigger driver. LCH’s UK unit clears for the London Stock Exchange, and its French division is the CCP for all NYSE Euronext’s European bourses. Whoever acquires the firm would grab a large share of Europe’s clearing revenue.
“At whatever point company X, whichever organisation that may be, joins forces with LCH.Clearnet, the party is going to be over,” said Silitschanu. “That company is going to be the behemoth, and it is going to be very hard for anyone else to take a chunk out of their business.”
Plans for the eurozone clearing house were contained in a confidential report produced by a working group headed by Banque de France, according to news reports. Contributors are said to include BNP Paribas, CACEIS, Calyon, NYSE Euronext, Société Générale, the French banking federation, The French finance ministry and financial markets organisation Paris Europlace. The plan called for each eurozone infrastructure provider to contribute systems to the proposed clearing house, and one of the examples given was to use LCH.Clearnet SA for cash equities and Eurex Clearing for derivatives.