EU Depositories, Clearinghouses Take Interoperability Steps
February 16, 2009
Momentum is building with announcements by clearinghouses and depositories earlier this month that further the European Union's efforts to reduce post-trade processing costs by improving interoperability.
On Feb. 3, the same day that Link Up Markets, a joint venture of eight central securities depositories, unveiled its March 30 launch date, the European Multilateral Clearing Facility (EMCF) and SIX x-clear said they had signed a memorandum of understanding to provide competitive clearing to the trading venues they service.
Chi-X Europe, whose clearer is Fortis subsidiary EMCF, says it will be the first multilateral trading facility (MTF) to take advantage of the new link to offer users a choice of central counterparty. NYSE Euronext's MTF, which recently had its rollout delayed for a second time, in October named Depository Trust & Clearing Corp. subsidiary EuroCCP as its clearing provider but said it will also let LCH.Clearnet, SIX x-clear and EMCF act as central counterparties (CCPs) once they establish interoperability.
"Choice and competition offered through this horizontally integrated CCP model will result in lower costs," said Hirander Misra, COO of consortium-owned Chi-X Europe. "It's a better alternative than having trades go to only one CCP." Jan Bart De Boer, chairman of EMCF's supervisory board, added that "in post-trading, competition, not consolidation, delivers better and cheaper services for market participants."
While the European Commission has sought to harmonize cross-border clearing through the 2006 voluntary code of conduct for market infrastructures, only Switzerland's SIX x-clear and London- and Paris-based LCH.Clearnet have established a clearing link--for London Stock Exchange trades. SIX x-clear and EMCF say their connection will be live this summer.
Depository Connectivity
Madrid-based Link Up Markets, announced in April, aims to establish an interoperability hub for Germany's Clearstream Banking Frankfurt, Greece's Hellenic Exchanges Group, the Cyprus Stock Exchange, Spain's Iberclear, Austria's Oesterreichische Kontrollbank, Switzerland's SIS SegaInterSettle, Denmark's VP Securities Services and Norway's VPS. The German, Austrian, Swiss and Danish depositories will be the first to interconnect; Greece and Spain will follow in June and Cyprus and Norway in the fourth quarter.
"We have fulfilled our commitment to be live by this date," said Tomas Kindler, CEO of Link Up Markets, adding that the schedule reflects the level of preparedness at each depository. "In some cases we are improving on the bilateral links between some of the depositories, while in other instances there was no cross-border link," he said. The depositories in Greece and Cyprus, for example, use the same trading and settlement platforms and do not have external links to any other depositories.
Members of Link Up Markets will use International Organization for Standardization (ISO) 15022 message types for all communications but can choose to send them over the Swift messaging network or proprietary systems. "Because of the size of our book of business we feel it will be more cost-effective to start with a proprietary link," explained Vivian Mitropoulou, senior project manager at the Hellenic Exchanges' international division. "The larger depositories are in a better position to negotiate rates with Swift." The Greek depository had about EUR68 billion ($88 billion) in assets under custody at the end of last year.
Though he declined to provide an average fee for using Link Up, Kindler said that the cost for settling a cross-border European trade will be as much as 80 percent less than through an intermediary bank. Participating depositories would also be charged messaging fees.
