An extension of post-trade matching service Traiana that sends OTC equity trades through central counterparties (CCPs) will cut bilateral equity trade settlement fees for brokers and banks, and allows users to leverage clearinghouse interoperability between supporting clearinghouses in Europe for trades submitted to the service.
The announcement earlier this month that Traiana had linked up with three interoperating CCPs to send trades for settlement to clearing houses, which can then be netted off against trades from trading platforms, will save banks and brokers millions in fees, and is expected to have a flow-on effect for other market participants including as asset managers.
London Stock Exchange-owned LCH.Clearnet, the SIX Group and EuroCCP (which recently amalgamated with European clearing house EMCF) will clear trades submitted through the Traiana service, which is being tested by a group of banks in Europe.
The initiative was developed in response to the growth of equity swap transactions, which result in broker-to-broker cash equity trades (hedge trades). These hedge trades traditionally do not benefit from the netting opportunities that other instruments centrally cleared through CCPs are subject to. By clearing these trades through a CCP of the customers' choice, counterparts will save save on bilateral clearing and settlement costs and the market as a whole will benefit from reduced risk.
The initiative will have minor impact on the wider issue of interoperability for cash equity instruments in Europe, which has been limited due to incumbent exchanges protecting vertical clearing models, although will be viewed as a step in the right direction for CCPs and market participants supporting interoperability.
A source working closely with the initiative said the benefits of the deal would be concentrated in the broker and bank community, with broker-dealers most likely the earliest adopters of the initiative.
"The industry is waiting for the opportunity for all trading venues to be serviced by any one of the interoperating CCPs - that will deliver the most valuable benefit to the market," the source said.
"This sets an example because Traiana is doing this for the first time - it's opening up to three CCPs at once, which gives trading firms a choice, and this will lead to greater competition and efficiency in the market," the source said.