Exchange group Nasdaq OMX and Fortis Bank Nederland are hoping to transform the European Multilateral Clearing Facility (EMCF) into Europe’s dominant clearing house for cash equities. This follows Nasdaq OMX’s decision to launch an EMCF-powered central counterparty (CCP) for its equities markets in Stockholm, Helsinki, Copenhagen and Reykjavik, and its purchase of a 22% stake in the clearer from Fortis Bank Nederland, currently owned by the Dutch government.
“Together with EMCF, Nasdaq OMX has formed a new strategy for the entity, which is to be the leading cash CCP clearing house in Europe,” Hans-Ole Jochumsen, executive vice president of Nasdaq OMX, told theTRADEnews.com. “With the number of clients EMCF has – Chi-X, Nasdaq OMX Europe, Nasdaq OMX Nordic, and BATS Europe – it is well on its way to becoming a leading clearing house. Other potential clients are negotiating with EMCF.”
As part of the plan for EMCF, Fortis Bank Nederland and Nasdaq OMX plan to allow other industry participants to take stakes in EMCF. “The ownership structure could definitely include other MTFs or other incumbent exchanges. We also expect to have a broader range of banks to lower Fortis’s ownership,” says Jochumsen. “Negotiations are ongoing.”
Jochumsen added that the addition of more investors will help allay any concerns that the entity will be controlled by the Nasdaq OMX group, which competes directly with MTFs. “We want a broad ownership structure and we want to create a leading cash clearing house,” he said.
Jan Booij, chief executive of EMCF, added in a statement, “Being owned by multiple industry players will guarantee that EMCF will continue to deliver benefits to the market participants.”
Jochumsen expects EMCF’s competitive business model to tempt investors. “EMCF is able to charge very low fees compared with national-based cash clearing houses,” he said. “You will see pressure on these cash clearing houses and the exchanges who own them to reconsider their strategy.”
Competition from MTFs has played a big role in Nasdaq OMX’s decision to set up a new clearing house for its Nordic markets in conjunction with EMCF. Stockholm, Helsinki and Copenhagen currently lack a CCP and clearing has taken place through custodian banks. Nasdaq OMX contends the cost has put its exchanges at a competitive disadvantage to MTFs trading Nordic stocks, all of whom have access to low-cost pan-European CCPs such as EMCF or EuroCCP.
“If you look at the cost of trading, including the exchange fee, clearing fee, custody fee and settlement fee, then the cost of cross-border trading in the Nordic countries is extremely high,” said Jochumsen. “With the introduction of MTFs trading our products, it is obvious for everyone in the Nordic countries that this is a competitive disadvantage because it would be so much cheaper to trade Nordic equities on a new MTF with a CCP than it would be to trade them in our markets.”
Jochumsen thinks the competitive threat will help this latest effort to build a CCP for Nordic markets succeed where others have failed. “This is the point where we can get the support from the local markets to introduce the CCP,” he said. “We have been discussing a CCP for 10 years. You could argue that competition triggered a situation where everyone understands the need for a CCP in the Nordic countries.”
The CCP service will be launched in two stages. The first, available from January 2009, will offer so-called optional clearing, an interim solution where users who have opted to do so can clear trades with one another. Full clearing will be available from June 2009.
Nasdaq OMX is also planning to launch an equities clearing and settlement provider for the US market. The group acquired the Boston Stock Exchange Clearing Corporation
when it bought the Boston Stock Exchange last year. It plans to rename the unit Nasdaq Clearing Corporation (NCC) and relaunch in mid-2009. As part of the European deal, EMCF will get a 5% stake in NCC.