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Deutsche Börse, operator of one of Europe’s largest clearing houses, has talked to rival clearers about consolidation in cash equities clearing as a revamp of the region’s securities post-trade business appears imminent.
Clearing, viewed as the mundane processing of trades on stock and derivatives exchanges, has moved centre stage following the financial crisis as regulators insist on a greater use of clearing houses in the opaque derivatives markets.
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The clearing of equities in Europe has for months been on the verge of change as three clearing houses and their national regulators try to produce a mechanism under which they could together provide market participants with a choice on where their trades are sent for clearing.
The concept, known as interoperability, has been pushed since 2007 by the European Commission as a way of lowering post-trade costs across the region, which are about eight times higher than in the US.
A clearing house stands between two parties in a trade, acting as buyer to every seller and seller to every buyer to ensure that transactions proceed if one side defaults.
While cash equities clearing in the US is undertaken mostly by the Depository Trust & Clearing Corporation, the same process is undertaken in Europe by multiple clearers which market participants say is too complex and expensive.
Market participants are also often locked into using a clearer that has a working relationship with one particular exchange or other trading platform.
The clearers include LCH.Clearnet, based in the UK; European Multilateral Clearing Facility (EMCF), owned by ABN Amro and Nasdaq OMX; Euro CCP, a DTCC unit, and Cassa di Compensazione e Garanzia, part of Borsa Italiana, itself owned by the London Stock Exchange.
Eurex Clearing carries out all clearing of equities trades in Germany and has been lukewarm over interoperability, which would involve it allowing rivals to clear German stocks.
Progress on interoperability has been stalled for months as the three clearers involved, EMCF, Euro CCP and X-clear, a Swiss clearer, have tried to assuage regulators’ concerns that three-way linkages between clearers could trigger a domino effect if one clearer were to default.
Rainer Riess, managing director at Deutsche Börse, said that interoperability “tends to introduce systemic risks”.
“We are very open to European solutions. We believe that consolidation in that space could be useful for the market. We are in no hurry to move but we are open to seeking consolidation where it is useful,” he told the Financial Times.
Asked which clearers the group was talking to, Mr Riess said: “Nobody I’d like to discuss at the moment.”
He added: [Consolidation] is an area I expect we’ll see a little bit of movement on this year.”
Consolidation among clearers could happen first at EMCF, whose majority owner, ABN Amro, started talks last year with DTCC and Euro CCP about a possible sale of its stake.
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