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a CCP . EuroCCP could help emerging markets grow by making it easy for the international firms to trade there . Bringing liquidity to emerging markets is a very positive thing to do .
Opportunities for asset class diversification
“ For the next decade , shared infrastructure for equities clearing makes sense . It is demanding to comply with new regulations so the fixed cost component of running a CCP is always rising .”
into fixed income or derivatives are regularly reviewed by the company . The main challenge is access to trades . Fixed income is mostly a bilateral market adjacent to repo transactions , with strong network effects and incumbent CCPs that are unlikely to want to interoperate . Derivatives is characterised by exchanges asserting intellectual property rights over the indices and contracts , which constitute a barrier to entry . The market structure of these asset classes is very different from shares .
Two years ago , EuroCCP announced plans to diversify into clearing securities finance transactions . Although there is much potential for savings from capital and operational efficiency , it soon became apparent that firms were spending a considerable amount of time and energy on preparing for Brexit . Many firms did not have the bandwidth to do non-mandatory things while they were trying to prepare for the UK leaving the EU . Firms simply don ’ t have the time to connect to a new service regardless of the benefits of us clearing those types of transactions . For the moment , that project is on hold . But the company may return to it if clearing of those transactions becomes mandatory through regulation .
HM : Looking to the future of clearing , do you see any trends developing at the moment ? DC : With MiFID having broken down the rules on exchanges that prohibit their own members from trading with anyone else , we have seen a gradual move towards open access and interoperability . More and more stock exchanges are probably close to realising that there is no competitive advantage to doing their own equities clearing , but changing the status quo involves investment and effort .
EuroCCP is owned by three exchanges , Nasdaq , Cboe Global Markets and Euronext , so the firm is positioned very strongly in the market . Each owns 20 % of EuroCCP , while the remaining 40 % is owned by two other shareholders , ABN AMRO and DTCC . It is truly an open model where shareholders ensure that there is dynamic efficiency in equities clearing through strong competition . Interoperability has become the norm in Europe , and shared infrastructure among stock exchanges is the logical next step in the evolution to a more efficient post-trade configuration .
Moving forward , interoperability must become less expensive , with the reduction of inter-CCP margin levels and settlement volumes among the three interoperating CCPs . If we solve that problem , we will solve the scalability problem at the same time so that more CCPs can join the interoperability cluster . Once that happens , more CCPs can compete and I believe that ’ s when we will see consolidation . EuroCCP ’ s business model is to be a shared infrastructure , and shareholders are open to the idea of more exchanges investing in the firm . Why have your own CCP , when you can join EuroCCP as a shareholder and offer the lowest clearing fees to your clients ? There is no competitive advantage to clearing your own equities trades .
HM : What ’ s the latest in terms of EuroCCP ’ s preparations for Brexit ? DC : As EuroCCP is an EU Dutch-based clearing firm with UK participants and clients , the firm has discussed Brexit with the Bank of England in great detail . Before the European Market Infrastructures Regulation was introduced , the Bank of England had a regime called Recognised Overseas Clearing House or ROCH , which allowed non-UK CCPs to clear for UK platforms and UK participants . It is considering introducing a similar regime post-Brexit and EuroCCP has already submitted an application to gain that recognition status .
64 // TheTrade // Autumn 2018