The TRADE predictions series 2023: Post-trade

Participants across Cboe Clear Europe, LCH, Eurex and Clearstream Banking S.A explore the post-trade trends of 2023.

By Editors

Tim Beckwith, head of commercial development, Cboe Clear Europe: While Europe’s post-trade landscape will continue to develop in 2023, there is a risk that the significant progress made to expand access to competitive clearing in cash equities begins to unravel. The strongest indication of this is the decision of some national exchanges to revert to a reliance on their own clearing provider, but regulatory factors are also at play in the re-emergence of verticalised cash equities market infrastructures.

A competitive clearing environment should be viewed as a key element of the EU’s efforts to revitalise its capital markets, helping to attract investors and reduce the costs of investing. Cboe Clear Europe, as a long-time proponent of open access, has witnessed first-hand the benefits this market structure brings to market participants. We have seen an increasing uptake for our preferred clearing service this year – which is used when both sides of a trade wish to use alternative CCPs, rather than the primary CCP – and will continue to push for this trend to become mainstream in 2023. Also on the agenda will be the impact of the Central Securities Depositories Regulation (CSDR) on settlement performance. With European policymakers working on a reform of the regulation – including a clarification of buy-in rules – we can expect the industry to pay close attention to this matter in 2023.

Philip Brown, CEO, Clearstream Banking S.A.: In 2023, I predict three main notable trends; firstly, digital securities will start to become mainstream, will be better understood, and will start to deliver some of the digitisation benefits we have all anticipated for so long. Secondly, securities collateral management will come back with a vengeance as the changes wrought by the end of the era of low interest rates start to have effect. Thirdly, the more advanced players in the post-trade industry will start to develop really usable ESG solutions to the market, led by Europe and European issuers. After the scares around crypto and tying all these together, investors will wish to see all of this delivered by trusted, financially sound intermediaries who put the safety of their clients’ assets first.  

Susi de Verdelon, head of SwapClear and listed rates, LCH: Next year will see another big step forward in the global transition programme from existing benchmarks to risk-free rates with the cessation of US Dollar Libor in June and the comprehensive adoption of SOFR in its place. An extensive amount of coordination has been central to the implementation of changes that will ultimately see the adoption of rates that are truly representative of their underlying market. As one example of the fruits of this concerted industry effort, swap liquidity has grown considerably in the last 18 months – approximately 90% of USD swap risk cleared into SwapClear is now SOFR-based versus only 10% in January 2021. The USD Libor conversion will be a significant multilateral event – over 600,000 trades at SwapClear alone – which is much larger than previous conversions. With this in mind, as we approach the Q2 2023 conversion dates, it is important that market participants continue to collaborate to create conditions that accommodate the Libor cessation process and that firms have put final preparations in place to ensure a smooth and orderly transition to SOFR.

Phil Simons, global head of FIC Derivatives and repo sales at Eurex: In 2022, we have seen double-digit percentage growth in European repo volumes, both in GC Pooling and the repo market. This trend will clearly continue in 2023. With rising inflation, a changing rates environment and increased volatility, initial margins have gone up considerably. With all that, efficient funding and subsequently financing collateral management will be key for the upcoming year. In addition, the temporary central clearing exemption granted to pension funds by the European Commission is going to expire in June 2023. All these factors mean that the number one priority for 2023 is going to be that the buy-side will be looking for cleared repo and linking that with their derivatives contracts. Repo plays an integral role in the financial markets providing a key source of funding and a substitute for unsecured deposits. The special and general collateral segments enhance the utility of the repo market by providing a means of financing securities portfolios and a mechanism for sourcing valuable collateral, which is of critical importance given the scarcity of high-quality assets.