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March 5, 2012 11:50 am
X-clear, the Swiss clearing house, has said it is “actively looking” at acquisitions and is considering setting up a eurozone-based central securities depository (CSD) as new clearing arrangements and regulation reshape services for completing trades in Europe.
Services for settling and clearing trades in Europe, long the unglamorous “plumbing” part of the markets, face a shake-up as regulators want to introduce choice, cut overall trading costs and produce rules governing CSDs for the first time.
Many of Europe’s alternative trading venues and clearing houses, including X-clear – part of Zürich-based SIX Group – have been given permission to free up access to other clearing houses, a push known as “interoperability”.
A clearing house, also known as a central counterparty (CCP), stands between two parties to guarantee a trade is completed if one party defaults.
Tomas Kindler, head of clearing services at X-clear, said the group was looking to take advantage of the upheaval. “We are actively looking at acquisition targets,” he said in an interview. “One area is scale, the other is product capabilities, like derivatives clearing for example.”
X-clear has estimated its share of processing shares traded on the London Stock Exchange doubled in two months while EuroCCP, a rival, estimates its market share has gone up from 6 per cent to 25 per cent in a matter of weeks.
X-clear is also keen to break into the settling of trades, where legal ownership of the asset is exchanged for cash. It is one of the few areas of trading that has remained untouched in recent years by competition, user choice and regulation. It is coming under scrutiny as regulators look to safeguard financial market stability.
Brussels is working on legislation that would for the first time put in place oversight of such infrastructures on a pan-European basis, treating them as systemically important entities. It would also allow a Europe-wide “passport” for CSDs to significantly cut the cost of cross-border settlement and help put Europe on a more even footing with the US, where post-trade costs are much lower.
The European Central Bank is also creating a central IT platform, known as Target2Securities (T2S) to allow CSDs to provide settlement services in equities and bonds in central bank money in Europe. However, the project has been hit by repeated delays.
CSDs in each European country carry out settlement, which can be expensive where cross-border transactions are involved. A passport and the IT project may cut costs but likely force national CSDs to seek other business lines. Switzerland, like the UK, has also opted out of the T2S project.
“Our preferred option is to set up a eurozone CSD. Another option is to partner,” said Mr Kindler, referring to indications from some banks, such as Bank of New York Mellon, which have indicated they will explore the idea of creating their own CSDs – which will plug into T2S – to offer their own collateral services.
Mr Kindler said X-clear would decide on whether to pursue a eurozone CSD project in the second quarter.
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