EuroCCP Signs Code of Conduct
European Central Counterparty Limited (EuroCCP) announced on April 10 that it had signed the Code of Conduct for clearing and settlement during a meeting at the European Commission in Brussels. EuroCCP is DTCC’s European subsidiary.
The Code was signed formally by Diana Chan, EuroCCP’s CEO, in keeping with a commitment made by DTCC, EuroCCP’s parent organization, when it was selected to provide a clearing and settlement solution for Turquoise, a group of global investment banks creating a pan-European trading platform. By signing the voluntary Code of Conduct, EuroCCP agrees to enhance transparency and increase competition in the post-trade sector.
On March 31, EuroCCP received approval as a Recognised Clearing House from the U.K.’s Financial Services Authority (FSA). That approval allows EuroCCP to begin clearing and settling trades for Turquoise and other multilateral trading platforms and exchanges in Europe.
Toward a new standard
“We believe EuroCCP can set a new standard in helping to reduce the costs of clearing and settlement in Europe,” said Chan. “We are already in discussions with a number of trading platforms that are looking for an alternative low-cost clearing and settlement provider.”
'At-Cost' Business Model
EuroCCP’s “at-cost” business model means it will return any excess money beyond that required to fund the business to its participant firms in the form of rebates or discounts.
The organization is also user-governed, with a 13-member Board of Directors made up of participant firm representatives, three independent board members and two management representatives.
The participant organizations include Deutsche Bank, Goldman Sachs, Merrill Lynch, Citi, UBS, BNP Paribas, Credit Suisse and Morgan Stanley. The three independent directors are Edouard-François de Lencquesaing (former head of transaction banking and IT at Crédit Commercial de France), Iain Saville (former chief executive of CRESTCo Ltd.) and Derek Ross (former partner at Deloitte U.K.).
As a result of EuroCCP being approved by the FSA as a Recognised Clearing House and EuroCCP signing the Code of Conduct, the firm has published its fee schedule on its website. The fees are expected to be significantly less than other clearing organizations in Europe.
Chan pointed out that in addition to low fees for clearing and settlement, EuroCCP will provide added processing efficiencies. It is envisaged that financial firms that trade on any multilateral trading facility or exchange that uses EuroCCP can benefit by having their trade obligations netted down or reduced into one net settlement position each day per security, thereby requiring only one settlement for all trades on all platforms. Moreover, there will be one collateral amount to secure open positions across all platforms.
Code’s key provisions
The Code of Conduct essentially requires stock exchanges, central securities depositories and central counterparties (such as EuroCCP) to open up competition in clearing and settlement.
Key among the voluntary provisions is that prices charged by clearing and settlement organizations be publicly disclosed and made comparable. The Code also establishes ground rules for access and interoperability between market infrastructures, building on the provisions under the Markets in Financial Instruments Directive (MiFID). MiFID fosters cross-border securities market integration by removing barriers to competition in the trading of securities. Finally, the Code requires that services be made available to users on an unbundled basis.
“We are charging very low fees,” Chan said. “In addition, one of the key differences between us and some other clearing organizations in Europe is that we give back to clearing participants the full amount of interest earned on cash collateral, because of our ‘at-cost’ business model. For some firms, the spread they lose on the interest on cash collateral is a very significant hidden cost.”
The fee schedule for EuroCCP is available at the company’s website at http://www.euroccp.co.uk/docs/ EuroCCP_Fee_ Schedule_ Mar2008.pdf. @