The transformation of the post-trade landscape in cash equities will be led by the merger of two of Europe's largest clearing houses – EMCF and EuroCCP – and new rules for trading and markets included in MiFID II.
The combination of EuroCCP and EMCF, signed off by regulators last week, will create synergies by reducing the number of clearing houses that market participants need to connect to. The trading venues that EMCF and EuroCCP clear for, accounted for almost 38 per cent of overall European trading activity. The real driver for reduced post-trade costs in Europe is most likely to come through open-access rules in MiFID II, which will compel Europe’s major exchanges to offer a choice of clearing houses, known as interoperability.
Interoperability allows market participants to cut post-trade costs by using the same clearing house to process their trades, regardless of where a trade is executed. If a broker could clear trades in German stocks conducted on Deutsche Börse and Bats Chi-X Europe on a single venue, it would reduce costs by allowing buy and sell positions from the same firm in the same stocks to be netted at a single clearing house. It also means clearing houses would need to compete based on the service they provide.
Julien Kasparian, head of UK sales and relationship management at BNP Paribas Securities Services, said: “Open access are the magic words. If regulators can agree on rules for interoperability there will undoubtedly be consolidation among clearing houses and the post-trade landscape will be transformed. We still have too many clearing houses in Europe, some of which are unsustainable.”
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