Bolsas y Mercados EspaÃ±oles (BME) has welcomed a proposed overhaul of Spain's post-trade infrastructure by the ComisÃon Nacional del Mercado de Valores (CNMV) that will support the Spanish stock exchange's plans to launch a central clearing counterparty (CCP) service. CNMV, the Spanish securities market regulator, announced last week it will launch a consultation paper in early January proposing reform of the clearing and settlement system in Spain.
The regulator is expected to call for a change to articles 44 bis and 44 ter of the Securities Market Act to create a framework for CCPs in Spain, along with other legislation for further market reform.
Currently collateral is posted to a joint guarantee fund by settlement participants in the Spanish market, a mechanism that was earmarked for reform by the CNMV in February 2010 as part of an overall review of the country's securities market environment. The BME announced it plans to launch a CCP for equities following the review.
A CCP would offer a simpler, more dynamic risk management system uses netting to reduce the number of trades settled. It would also create a system that could be more easily integrated into pan-regional projects such as TARGET2-Securities, the European Central Bank's proposed single European settlement platform.
The planned consultation paper is expected to address capital requirements, the necessity for a banking licence, risk management and hedging and obligatory use of CCPs. Feedback received by the regulator will be reflected in legislative proposals put to the Spanish parliament.
The BME, which already operates CCPs for derivatives (MEFF) and for fixed income (MEFFREPO) sees the operation of a CCP as valuable addition to its business.
Changes to the Spanish post-trade model are already underway to allow effective competition to the BME's trading operations. Iberclear, the central securities depository, which is responsible for the majority of clearing and settlement for equity and fixed-income trades in Spain, currently requires clearing firms to supply an identification number that can only be generated via one of the Spain's exchanges in Madrid, Barcelona, Bilbao and Valencia.
To circumvent this, pan-European central counterparties aggregate the Spanish trades of their multilateral trading facility (MTF) clients at the end of daily trading then send them to a local broker, which crosses the trades with itself in the closing auction to generate the required identification number.
On 18 January, Iberclear is expected to announce that it is able to generate ID numbers for trading venues itself, making MTF operation in the Spanish market simpler and cheaper. One MTF, Plataforma Alternativa de Valores EspaÃ±oles, will specifically be targetting the Spanish market offering trading at 66% lower than is currently available. It is expected to launch in June 2010 once it has been granted a license by CNMV.