Post-trade processing firm Omgeo and clearing house EuroCCP – both affiliates of US post-trade utility The Depository Trust and Clearing Corporation (DTCC) – have teamed up to develop a pan-European equities central counterparty (CCP) service for hedge fund transactions.
The two companies expect to test the service this year and aim to launch it in 2010. It will initially cover equities in 15 European markets and seven currencies.
According to the firms, the new offering will mitigate counterparty risks and reduce inefficiencies in the hedge fund/prime broker/executing broker processing chain. The service will route hedge fund/prime broker equity trades – as well as other over-the-counter transactions – from trade matching through to central counterparty netting and onward to settlement. The model will enable a prime broker to authorise locked-in trades and release them to EuroCCP, which will guarantee and net the trades before routing them to the appropriate European central securities depository for settlement.
EuroCCP said netting will dramatically reduce the number of settlement transactions, but added that this function would not be available in the UK and Ireland in the near term because of those countries’ stamp duty regulations.
The CCP solution will be based on Omgeo’s Central Trade Manager (CTM) platform, which services trades from execution to settlement. Hedge funds will access the service through CTM, and through executing and prime brokers that are EuroCCP participants.
The solution will require no additional technology or investment for CTM customers that are EuroCCP participants. EuroCCP participants will be able to access the service through their existing links to EuroCCP.
“EuroCCP has done a fantastic job in offering the lowest settlement costs for its participants,” said Marianne Brown, president and CEO of Omgeo, in a statement. “By working together to streamline trade processing for hedge funds, prime brokers and executing brokers, Omgeo and EuroCCP hope to reduce settlement costs even more.”
EuroCCP is the European subsidiary of DTCC. It offers CCP services to a range of pan-European multilateral trading facilities, including Turquoise, SmartPool and NYSE Arca Europe. Omgeo is a joint venture between DTCC and market data vendor Thomson Reuters. It provides automation and confirmation of the economic details of trades executed between investment managers and broker-dealers.