Five global banks have signed up to use EuroCCP, the Depository Trust and Clearing Corp.-owned pan-European clearing house, in a sign the company is already gaining ground as competition for equities clearing order flow reaches new heights in Europe.
Bank of America Merrill Lynch (BAC), Nomura (NMR), Credit Suisse (CS) andMorgan Stanley (MS) and Citigroup (C) have signed up to use EuroCCP as their preferred clearing provider, in order to take advantage of new clearing reforms, recently approved by European regulators, that will bring competition to Europe's inefficient clearing landscape.
The reforms, known as interoperability, will for the first time allow users to choose their preferred clearer when trading on an exchange forcing Europe's largest major cash equities clearers, ABN Amro-owned EMCF, Depository Trust and Clearing Corp.'s EuroCCP, Anglo-French clearer LCH.Clearnet and Swiss exchange-owned Six x-clear, to compete for equities-clearing flow head to head.
Two trading platforms, Bats Europe and UBS MTF, have already announced that they will provide the preferred clearing service to their customers, while more exchanges and trading platforms are expected to follow suit.
Bank of America, Morgan Stanley, Credit Suisse and Nomura), will each elect to clear through EuroCCP when trading on Bats Europe, while Citigroup, through its Global Transaction Services third-party clearing business, will clear through EuroCCP when trading on UBS MTF, EuroCCP said this morning.
Diana Chan, chief executive of EuroCCP, said: "This is huge progress towards achieving true competition in clearing and great news for our clients. EuroCCP has already seen interoperable clearing activity thanks to the support of these participants who will now benefit from greater choice in clearing."
Today's announcement is a major coup for EuroCCP, which initially struggled to pick up order flow after entering the European market in 2008. Many market-watchers now expect the company, which recently slashed its tariff structure in readiness for the new reforms, to become the major beneficiary of the new market structure.
Speaking to Financial News last week, Christian Lee, head of the CCP practice at technology consultancy Catalyst, said: "EuroCCP is making a big play. It can leverage massive economies of scale as part of DTCC, which puts it in a strong position. Some of the entrenched clearers have a much higher cost base making it harder to compete on fees."
EuroCCP is also the incumbent clearer to Turquoise, another growing pan-European trading platform, meaning firms trading on both Bats and Turquoise can clear through the same clearer. This allows both sets of trades to be netted and passed on in a single transaction to the settlement house, reducing the margin required to secure the trade and cutting out a settlement fee.
EuroCCP's win comes largely at the expense of EMCF, the incumbent clearer to Bats Europe.
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