Post-Trade | Clearing & settlement
“I’m not expecting the floodgates to interoperability to open soon. EMIR blesses interoperability but it doesn’t make it mandatory.” Hugh Brown, EMCF
of Euroclear to collaborate with other CSDs, CCPs and other market participants. Last November, Euroclear France introduced collateral management services with the central bank of France and Euroclear Bank now has cross-border collateral management arrangements with the Hong Kong Monetary Authority. In July, it launched the “Collateral Highway” which aims to source securities to be used as collateral by providing the infrastructure to move securities where and when needed, no matter where the collateral is held. “It’s a just-in-time approach to collateral management,” says Awan. BNP Paribas has signed up as the first agent bank to work with Euroclear on the Collateral Highway – another example of how partnership and collaboration between previously competing institutions is likely to characterise the new post- trade space. “We think we will see partnerships that you wouldn’t have believed possible four or five years ago,” says Awan.
For smaller CSDs, with expertise in the legal and tax structures of its local jurisdiction, survival may be probable short-term. Long-term though, they will have to meet the challenges of cross- border competition head-on, following the example of bolder national CSDs such as VP Securities in Denmark.
A small organisation (160 people), which left behind its non-profit status in 2000, it runs a large-scale operation offering highly competitive prices on yearly clearing and settlement volumes of around US$5 trillion. According to CEO, Johannes Luef, over a third of revenues now come from non-traditional CSD activities, such as issuer
Best Execution | Autumn 2012
serving and consulting, and, in 2007, it opened a new CSD in Luxembourg to make it less costly for Danish banks and mortgage companies to finance operations in the Eurozone. To prepare for increased competition and T2S, VP is currently investing in a sizeable overhaul of its systems, backed by its shareholders, Denmark’s major financial institutions.
“I think technology will be key”, says Luef. “One of the basic principles we have agreed with the market is, yes, of course we should join T2S but in such a way that VP takes the load. That’s deep in the architecture of the change and has eliminated customers’ fears.” It’s a new game in post-trade services and new CCPs and new-look CSDs are on their way. “We’re seeing market participants at different levels looking up and down the value chain for new opportunities,” says Nathan Renyard of BATS Chi-X. “There’ll be a blurring of roles in future and the role of custodians and CSDs will be harder to define.” ■
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