News | Post-trade Europe’s clearers join forces
The European Multilateral Clearing Facility, (EMCF) which is currently owned by ABN AMRO and NASDAQ OMX (see.p14), and EuroCCP, the European unit of the Depository Trust & Clearing Corp (DTCC), are merging to create a clearing powerhouse.
The deal comes hot on the
heels of reports that the DTCC was undertaking a major review of its business, but discussions concerning a combination were first held more than two years ago. The new entity, to be called EuroCCP, will use the risk management framework and customer-service organisation of EuroCCP, and it will run on the technology and operations infrastructure of EMCF. It is to be based in Amsterdam, with client-facing functions located in London and Nordic coverage provided from Stockholm. Diana Chan, chief executive of London-based EuroCCP, who will retain that role at the new firm, said, “This combination will simplify the clearing landscape and result in a more robust central counterparty. We will involve market participants and there’s the possibility of additional entities joining in the future. This is a structure that will welcome additional shareholders.”
Jan Booij, CEO, EMCF said: 10 Diana Chan
“This is not only a transformational initiative for EMCF and EuroCCP but for the industry. It will enable us to provide more flexible and innovative clearing services to all clients, while our sustainable business model will ensure costs are kept low and will provide the very best in risk management, technology, settlement and client service.” EuroCCP and EMCF who both made their debuts in 2007 brought competition to equity clearing at the same time as alternative trading systems threw the gauntlet down to the European stock exchanges. EMCF stole a march on its rival by winning big clearing mandates for Chi-X Europe and BATS Europe, which have since merged. By the end of 2011, it was clearing over 40% of on-exchange European equity trades, and was consistently profitable, according to company
filings. By contrast, EuroCCP began with a smaller slice of the pie, clearing for the then bank-owned Turquoise platform. By the end of 2011 it had a 7% market share, and posted losses of €15.8m, its fifth successive year in the red. EuroCCP’s fortunes were
reversed last year following the long expected introduction of interoperability. Until then, clearing firms had exclusive relationships with trading venues, but after years of discussions competition opened up and several clearing houses were allowed to clear for a given trading platform. EuroCCP reaped the benefits, increasing its market share to near 25%, according to the firm. Users have benefited as well in that the average cost to clear has dropped from nearly 30 euro cents in 2007 to some charging nothing today if firms reach a specific volume threshold, according to consultancy Aite Group. Further savings will
be created by opening interoperability to trading venues that currently clear uniquely through either EuroCCP or EMCF. These include Goldman Sachs’ dark pool, Sigma X; NYSE Euronext’s trading venues, Smartpool and NYSE Arca Europe; and the NASDAQ OMX exchanges in Copenhagen, Helsinki and Stockholm. ■
Best Execution | Spring 2013
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