DTCC Connection

Jun 16, 2015 • DTCC Connection

Greater Choice in Cash Equities Clearing in Europe

By Diana Chan, Chief Executive Officer, EUROCCP

EuroCCP LogoNasdaq Nordic markets and SIX Swiss Exchange will increase the number of central counterparties (CCPs) available to firms trading on their markets, allowing each firm to direct their trades to be cleared by their CCP of choice.

Nasdaq Nordic markets comprise the stock exchanges of Copenhagen, Helsinki and Stockholm and are currently cleared by EuroCCP. SIX Swiss Exchange is currently cleared by LCH.Clearnet Ltd. and SIX x-clear. Both exchanges announced that they will be cleared by EuroCCP, LCH.Clearnet Ltd. and SIX x-clear. Implementation is subject to regulatory approval, and the timing is to be agreed among all parties.

By concentrating clearing with its CCP of choice, a firm reduces settlement costs and the amount of collateral required. All the trades a firm executes in the same security on the same day on multiple platforms can be netted into a single settlement and margin amount by a CCP that can clear for all the platforms.

Trading venues that have given access to the interoperating CCPs – EuroCCP, LCH.Clearnet Ltd. and SIX x-clear – together accounts for around 70% of equities trades in Europe. They include BATS, Turquoise, London Stock Exchange, which are now joined by Nasdaq and SIX Swiss Exchange.

In order for two parties to a trade to use different CCPs, the CCPs need to become each other’s counterparty through an interoperability agreement. At the heart of interoperability are measures for each CCP to manage its exposure to the other’s inability to fulfil its obligations. Once CCPs interoperate, the arrangement can cover the trades executed on any trading platform cleared by the CCPs. Now that Nasdaq and SIX Swiss Exchange have decided to offer a choice of three CCPs, market participants are eagerly awaiting Oslo Børs to make the same decision as it is currently cleared by only two of the three interoperating CCPs - LCH.Clearnet Ltd. and SIX x-clear.

EuroCCP is equally owned by BATS Chi-x Europe, NASDAQ OMX, ABN AMRO Clearing Bank and The Depository Trust & Clearing Corporation (DTCC).

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