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Post-Trade | Clearing & settlement


“The complexity of the regulations, and the magnitude of potential change that impacts the entire global landscape generally, mean financial institutions are moving into uncharted water. There are few certainties about who will emerge as market winners.” Saheed Awan, Euroclear


to be required to put their own resources into the default waterfall as a curb on reckless behaviour. For larger CSDs especially, the burgeoning


Cornwall, head of market structure at SIX Swiss Exchange. Concern also centres around pricing and fair competition. Urs Wieland, CEO, SIX x-clear, has publicly argued that prices are currently as low as they can go. Offers of capped fees at certain trade levels suggest clearing has become a subsidised, loss-making activity for some CCPs, he says, and compromises the notion of a level playing field. Brown at EMCF agrees. “I share the concern that some CCPs, who do not have to make a return, are pricing unrealistically to generate new business”, he says. But regulatory moves to create common standards for CCPs, he argues, should curb any risk of competition moving into risk management or CCPs marketing themselves on the basis of reduced margins. To remove the temptation to compete on margin


and to strengthen risk management, says Robert Barnes, CEO of UBS MTF, what CCPs need is some “skin in the game” and is calling for CCPs


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demand from both market participants and CCPs for capital and collateral management and optimisation, is proving welcome news. Even more than clearers, CSDs are on the cusp of a brave new world. Apart from the EC’s proposal to separate out banking services from the larger CSD’s settlement services, T2S, an initiative driven by the ECB (see p.58), promises to break down protected national barriers and create open access to Europe’s settlement markets. That has clear implications for pricing. “The natural outcome of T2S is that settlement becomes commoditised so CSDs will need to move up the value chain and offer more value-added services,” says Hersh Tegala, head of business intelligence at Clearstream. “We want to ensure we still attract a critical mass of securities onto our books and continue to provide best-in-class asset servicing with collateral management – a major industry concern at present, as our differentiator.” At Euroclear too, collateral management and optimisation is regarded as the space where CSDs, with large pools of collateral, can add value. “Collateral management is the paramount weapon for risk reduction and regulatory capital efficiency,” says Awan. “It’s the one of the most important responsibilities today in managing your clients’ assets in an optimal way.” With many institutions facing a tsunami


of regulations, Awan says there will also be opportunities for CSDs with the scale and resources


Best Execution | Autumn 2012


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