August 2012 marked four years since DTCC’s European subsidiary, EuroCCP, went live with its central counterparty clearing services for the European equity markets.
Today, the London-based EuroCCP operates in 19 markets and clears 25% of European cash equities trades. It has also played a major role in driving down clearing fees, which have dropped 80% over the past four years, creating a widely held view that these fees are now at an acceptable level. What’s more, the introduction of interoperability, of which EuroCCP has been a key proponent, has resulted in significant savings for the industry. EuroCCP clients have reported savings of 30-40% in settlement costs and up to 70% in collateral funding costs.
Background for growth
When DTCC launched EuroCCP, the goals were to cut costs, increase efficiencies and give trading firms a choice of clearing platforms in Europe.
Until 2007, the region’s national stock exchanges had a monopoly over equity trading in their home markets. The Markets in Financial Instruments Directive (MiFID) changed this, unleashing a wave of competition in European equity trading by allowing the creation of a new generation of trading venues.
The impact of the legislation was quickly felt. Between 2008 and 2012, the major European primary markets’ share of equity trades decreased by 18%, while BATS Chi-X Europe and Turquoise, new trading platforms enabled by MiFID, increased market share by 32%.
Although the launch of these new trading venues made pan-European trading possible, the liberalization of post-trade market infrastructures was slower to materialize, as many European central counterparties (CCPs) were part of the pre-MiFID landscape, where trading, clearing and settlement were organized along vertical lines and closed to competition.
DTCC created EuroCCP to challenge the existing model for equities clearing in Europe.
For years, market participants in search of lower costs, better service and more innovation had been demanding change. The new regulatory environment made it possible for firms like EuroCCP to deliver these benefits. For example, the proposed European Market Infrastructure Regulation aims to enable trading firms to select their clearer of choice when trading on an exchange or multilateral trading facility.