Competition in the US equities clearing market could introduce both risk and cost to post-trade processes, according to Stuart Goldstein, managing director, corporate communications at The Depository Trust & Clearing Corporation (DTCC), the US’s central clearing provider.
“Bifurcating clearing in the US at this point would introduce a new element of systemic risk,” Goldstein told theTRADEnews.com. “We will have to see whether financial firms or regulators think that is a good idea.”
Last October, exchange group Nasdaq OMX announced it was planning to launch a clearing and settlement service for US equities in mid-2009, pitting it against DTCC and reintroducing competition in the clearing space for US equities.
Goldstein believes the Nasdaq initiative will also introduce costs for brokers and, potentially, their clients. He points out post-trade competition between the US’s regional stock exchanges was shunned by customers 20 years ago because of the need to maintain an infrastructure to communicate with multiple clearers and the need to have collateral and margin in more than one place.
“There is no question in our minds that overall, whatever Nasdaq does, it will increase costs for the industry because it will be turning the clock back,” he said. “The argument in Europe is that a fractured clearing market is more expensive for everybody. Nasdaq is proposing a return to a fractured market in the US.”
DTCC will continue its push into Europe in 2009 through its EuroCCP subsidiary and the planned acquisition of post-trade provider LCH.Clearnet. Goldstein said the growth strategy for EuroCCP is threefold. Firstly, it hopes to sign up more multilateral trading facilities. NYSE Euronext’s two pending MTFs, SmartPool and NYSE Arca Europe, will both use EuroCCP when they launch this year. Secondly, it hopes to add more services, such as the CCP for UK stock lending and borrowing announced yesterday. The third element is geographic expansion. The firm will enter Spain to support pan-European MTF Turquoise’s launch in that market.
“We are very pleased with the progress we have made in a very short period of time, and we do expect further progress in 2009 to expand EuroCCP,” says Goldstein. “This is independent of the LCH proposition, which will bring added benefits because of the increased volume resulting from the combination.”