Changes to Spain’s trade settlement process proposed by domestic exchange group Bolsas y Mercados Españoles (BME) could give multilateral trading facilities executing Spanish trades a boost.
Three multilateral trading facilities (MTFs) – Chi-X Europe, Nasdaq OMX Europe and Turquoise – trade Spanish equities. Currently, MTFs are required by Iberclear, Spain’s central securities depository (CSD), to possess an identification number for any transfer of stock ownership, which can only be generated from trading on one of the country’s four exchanges in Madrid, Barcelona, Bilbao and Valencia.
To get around this, MTFs aggregate all their Spanish trades and send them via their central counterparties to a local broker, which then crosses the trades with itself in the closing auction to generate the required identification number.
While the reference number will still be required under the new proposals, MTFs will be able to form bilateral settlement relationships with Iberclear and receive the number directly from the CSD, eliminating the additional cost and time of crossing trades on-exchange.
The cumbersome settlement process has so far stifled MTFs’ trading in Spain. They accounted for just 0.98% of Spanish blue-chip trading in the week ending 23 October, according to the Fidessa Fragmentation Index. By comparison, MTFs accounted for 40% of trading in the UK’s FTSE 100 stocks in the same week.
The changes are currently being reviewed by Spain’s Ministry of Economy and Finance and could take up to 12 months to be implemented.