EuroCCP Begins Final Testing Phase Before Launch
European Central Counterparty Limited (EuroCCP) has begun the final phase of testing prior to an August “soft launch” of trading on the Turquoise pan-European trading platform.
EuroCCP has been testing since November 2007, when systems development was completed for its clearing and settlement platform.
Testing timeline
Testing with Citi Global Transactions Services was completed in February of this year, while point-to-point testing with each of the nine founding members of Turquoise, all of which will be individual clearing or general clearing members of EuroCCP, was completed in April.
EuroCCP has been testing in phases with Cinnober, the developer of the Turquoise trading platform, for a number of months, along with a software firm hired by Cinnober, Applabs. A final round of testing will be completed in July.
Countdown to launch
The final phase of testing, which involves full end-to-end testing of all elements of trading, clearing and settlement began in late May, according to Thomas McCarthy, DTCC managing director, Product Management, EuroCCP.
“Essentially we are now having firms submit scripted trades that are executed on the Turquoise platform sent to EuroCCP and then on to Citi and the various settlement agents selected by the participants for settlement, while trade and netting reports are sent to the firms themselves,” said McCarthy. “We are testing different securities settled in different markets in different currencies, four different markets each week, in three cycles for the nine weeks leading up to the end of July.”
Outlook for expansion
EuroCCP will initially clear and settle trades in 1,500 equity issues in 14 national markets in Europe in seven different currencies. New markets will be added when the platforms that EuroCCP clears for expand their coverage. Ultimately, EuroCCP intends to clear in more than 20 markets in Europe.
Neil Henderson, DTCC managing director, Product Management for EuroCCP, said that EuroCCP was in negotiations with a number of other trading platforms, and expected to add other general clearing and individual clearing members as a result. After winning Turquoise last year in a competitive bid against several CCPs already in operation in Europe at that time, EuroCCP was appointed by SmartPool early this year. SmartPool is an institutional block trading platform jointly owned by NYSE Euronext, BNP Paribas and HSBC.
“Having multiple platforms clearing through one single clearing and settlement system allows more efficient netting of trades and reduction of settlement costs, and lower collateral costs as a result, since collateral only has to be kept at one place,” Henderson noted.
McCarthy said that in August, Turquoise will start to list a limited number of stocks, and any firm that has been accredited with the platform and EuroCCP will be allowed to execute transactions. More stocks will be phased in until all 1,500 securities are trading by the full public launch on September 5.
“Although we have found a few minor glitches in the testing, everything has gone remarkably smoothly,” McCarthy said. “Even the initial end-to-end testing has gone well. We processed about 82,000 transactions on May 27 during testing. Based on the testing results at this point, we should move smoothly towards launch in August and September.”
Henderson said SmartPool is expected to launch by the end of September.
“Before the end of the year, we expect to have 15 or 20 clearing or general clearing members of EuroCCP,” he said, “and an additional 40 or 50 trading members that clear and settle through them.”
Henderson noted that the nine members of the Turquoise consortium are involved in about 60% of the total equity trading in Europe, and that other trading members would add to the overall ability of Turquoise to generate liquidity for the platform.
“We are currently in negotiations with a number of trading platforms that are interested in our clearing and settlement capabilities,” he said, “and I think we will be able to convince a number of them to use EuroCCP, since we have by far the lowest costs in Europe.” @