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March 14, 2013 1:40 pm
Europe’s two largest cash equities clearing houses, EuroCCP and the European Mulitlateral Clearing Facility (EMCF) have agreed to merge operations to cut costs amid tough market conditions for share trading.
The deal, announced on Thursday, will mean BATS Chi-X Europe, the biggest customer of both clearing houses, taking a 25 per cent stake in the combined business.
A tie-up comes as market infrastructure operators around the world are forced to reassess their business models by a prolonged downturn in trading volumes.
Most exchanges and trading venues reported double-digit declines in volumes. The market for clearing equities in Europe has also been overturned in the last two years by an industry push to cut cost and increase customer choice over where their trades are cleared.
European regulators approved the move – known in the industry as interoperability – allowing a host of European trading venues and clearing houses to press ahead. BATS Chi-X Europe, the region’s largest share trading venue, has been one of the big proponents of the push.
It enabled EuroCCP, owned by the Depository Trust & Clearing Corporation, to take most market share but its at-cost business model means it is lossmaking. Its parent has injected more than €100m into its European operations in its four years of operation. EMCF, while profitable, has been one of the losers from the shift.
The new operation, to be called EuroCCP, will have its headquarters in Amsterdam and have client-facing functions in London.
Diana Chan, chief executive of EuroCCP, will become chief executive of the combined business while Jan Booij, chief executive of EMCF, will become its chief operating officer. BATS and DTCC will each own a 25 per cent stake in the new operation. Nasdaq OMX and ABN Amro, the main shareholders in EMCF, will also hold a 25 per cent stake.
The two clearers said the merger would allow customers to save money by netting their settlement costs, as well as cutting membership fees and connectivity costs.
“This is not only a transformational initiative for EMCF and EuroCCP but for the industry,” said Mr 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,” he said.
The move also marks BATS’ first foray into holding a stake of a clearing house in Europe.
“We are pleased with BATS’ involvement as it gives us a balance of ownership. From a volume perspective, it’s one of the largest trading platforms in Europe,” said Hans-Ole Jochumsen, president of Nasdaq OMX Nordic.
“This new entity is going to clear more than 90 per cent of Nordic volume,” Mr Jochumsen said. He added that the deal did not mean Nasdaq OMX customers would be able to interoperate with other European clearing houses. “We still believe they should be able too some time in the future. We have not decided when.”
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