The two largest pan-European cash equities clearing houses, EMCF and EuroCCP, plan to combine their strengths and capabilities by forming a new entity that will deliver greater efficiencies and sustainable competition to the pan-European marketplace. The combined firm will provide best practices in a number of important areas, including risk management, technology, settlement and client service.
Current owners of EMCF – ABN AMRO Clearing Bank and NASDAQ OMX – and current owner of EuroCCP – DTCC – along with BATS Chi-X Europe, have entered into a memorandum of understanding to become equal shareholders in the new combined clearinghouse. Upon execution of the definitive agreements, the transaction is expected to complete if the necessary regulatory approvals are received.
The combined company
The new central counterparty (CCP) will use the risk management framework and customer-service organization of EuroCCP, and it will run on the technology and operations infrastructure of EMCF. The new entity, to be called EuroCCP, is planned to be headquartered in Amsterdam, with client-facing functions located in London and Nordic coverage provided from Stockholm.
The future shareholders intend to appoint Diana Chan, CEO of EuroCCP, as CEO of the new entity and Jan Booij, CEO of EMCF, as COO, subject to regulatory approval.
Competition and efficiency
Commenting on the transaction, Chan said, “Bringing together EMCF and EuroCCP reflects the desire of many market participants to see sustained competition, consolidation and greater efficiencies in European clearing and post-trade processing.”
Clients will benefit from the following:
- Substantial settlement cost savings resulting from increased settlement netting and reduced inter-CCP settlements;
- Reduced collateral obligations as a result of portfolio margining and a single guarantee fund;
- Removal of one set of membership fees;
- Improved information technology;
- Lower connectivity expenses.
EuroCCP’s Supervisory Board will consist of representatives from ABN AMRO Clearing Bank, BATS Chi-X Europe, DTCC and NASDAQ OMX plus independent directors, providing a broad and balanced representation of the marketplace.
No single shareholder or group of shareholders will have overriding control. The balanced board structure and business model are intended to ensure market focus, low costs, sustained competition and that the CCP is financially robust. The Risk Committee and a Participant Advisory Board will have broad industry representation.
“This is not only a transformational initiative for EMCF and EuroCCP but for the industry,” said Booij. “It will enable us to provide more flexible and innovative clearing services to all clients, while our sustainable business model will ensure costs are kept low and will provide the very best in risk management, technology, settlement and client service.”
Chan added, “The new CCP will lead the way in encouraging greater competition between all cash equity clearing houses while driving down costs. Following the launch of four-way interoperability, the industry must now consolidate in Europe to achieve economies of scale and respond to the changing needs of market participants. Combining our organizations will accomplish this.”