Clearing the way forward

Ana Herrero-WallaceIf you haven’t yet had the chance to do so, check out the July issue of FragINSIGHT. It provides a very good overview of interoperability of clearing services, whetting one’s appetite to find out why everyone is talking about interoperability in Europe. I also invite you to read Steve Grob’s blog in which he asks “Is it time for smart clearing?”.

The European equity markets have undergone a period of rapid and unprecedented change and fragmentation over recent years. The issue in Europe is that many of the national exchanges own their own central counterparty and will not allow other Central Counterparty Clearing houses (CCPs) to clear their business. This vertical model goes against full interoperability and prevents true competition amongst trading services. The restrictions on clearing can also lead to increased post-trade costs for market participants.

Since the implementation of MiFID there has been much talk about providing full interoperability of clearing services, but we have not seen much movement on this until very recently.

The announcement by BATS Europe of their Preferred Interoperable Clearing Service paves the way for full interoperability. The cat and mouse chase continues with the BATS move being closely followed by Chi-X, one of their biggest competitors (and the subject of a proposed takeover by BATS), who last week announced that they will offer full four-way clearing interoperability to all of their trading participants.

The market will continue clearing a way forward as other MTFs will most likely follow suit in order to compete. This news will challenge the monopoly of vertical silo models established by some European venues, offering just one choice of clearing house to their members. Anything that lowers the cost of trading is a positive move as it can also help to encourage potentially greater trading volumes in Europe.

2 Responses to “Clearing the way forward”
  1. Anne says:

    LSE says today that they are sticking with 2 clearers for now (LCH.Clearnet and the Swiss facility Six x-clear) and plan to offer inter-operability on Turquoise first to test the water. Turquoise will allow customers to clear their equities trades through the LSE’s Italian provider CC&G, LCH.Clearnet or Six x-clear, as well as its existing clearer EuroCCP.

    This may be ok for now but MiFID II is likely to mandate a change here with the introduction of regulation prohibiting discriminatory practices that may prevent competition in the clearing space.

  2. Anne says:

    In a step towards the full four-way interoperable clearing service that the LSEG said would go live this month, subject to regulatory approval, LCH.Clearnet has launched a clearing service for Turquoise. Firms trading on Turquoise can now clear through either EuroCCP or LCH.Clearnet.


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