European post-trade: no clearer

The news that proposals for interoperability between LCH.Clearnet and other European CCPs have been put on hold for up to three months because of regulatory concerns about inter-CCP margin requirements is disappointing for anyone who wants to see more competitive markets in Europe.

If there is one critical difference between equity markets in the USA and Europe, it is the absence in Europe of a single post-trade process for all equity trading platforms. In the USA, investors can shop around between different trading platforms, knowing that all trades will go into the same post-trade channel, wherever they are executed. European investors do not have this simplicity, as different trading platforms use different central counterparties. Thus, if shares are bought on one platform and sold on another, instead of this resulting in a flat position at the end of the day (as in the USA), the result may well be two positions, each requiring margining and settlement.

Interoperability between the different central counterparties would help, by making it possible for trades from different platforms to go into the same process. This was, after all, one of the objectives of MiFID[1], but it has now been postponed. The consequence, as shown in the table below, is that Europe’s markets are split between the “old” and the “new”: the old stock exchanges largely clear through the old central counterparties and the new MTFs clear through the new central counterparties.

And never the two shall meet.

Relationships between MTFs and clearing houses (updated: November 2009)

LSE Euronext Deutsche Borse Borsa Italiana Swiss Exchange Nasdaq-OMX Nordic Chi-X Turquoise BATS Nasdaq-OMX Europe Equiduct Burgundy QUOTE MTF
LCH.Clearnet

X

X

X

Eurex Clearing

X

CCG

X

SIS x-clear

X

X

EuroCCP

X

EMCF

X

X

X

X

X

X


[1] See paragraph 48 of the preamble: “In order to facilitate the finalisation of cross-border transactions, it is appropriate to provide for access to clearing and settlement systems throughout the Community by investment firms, irrespective of whether transactions have been concluded through regulated markets in the Member State concerned.”

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