NYSE Euronext has not made a decision on future plans for clearing the cash equities traded on its market and was watching the effects of sweeping industry changes on European clearers very closely, a senior executive said on Tuesday.
Roland Bellegard, group executive vice-president and head of European execution at NYSE Euronext, told a London conference the fierce competition in European clearing is “unsustainable” but was “very interested” in the shift in market share to clearing houses such as EuroCCP in recent months.
The stock exchange operator’s careful assessment of the market illustrates how NYSE Euronext’s doomed merger with Deutsche Börse has thrown its cash equities clearing plans in Europe into sharp focus amid a rapidly shifting landscape in recent months.
Last year, many of the region’s alternative trading venues were granted regulatory approval to free-up access to other clearing houses, in 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. By keeping their trading flow in one CCP, investors can cut costs.
The development is reshaping clearing houses’ market shares. X-clear, part of SIX Group, estimated its share of processing shares traded on the London Stock Exchange doubled in two months while EuroCCP, a rival, estimates it has taken a 40 per cent market share in Chi-X Europe, the share trading platform owned by BATS Global Markets.
NYSE Euronext’s own long-term plans for clearing in Europe are being reassessed in light of the failure of the Börse deal, and the LSE’s planned deal to buy a majority stake in LCH. Clearnet. LCH.Clearnet currently clears the majority of NYSE Euronext’s trades from continental Europe but has served notice to end the relationship for equities.
Industry rumours had suggested that NYSE Euronext would use Eurex Clearing, owned by the Börse, as its clearing house for European equities and some derivatives irrespective of the outcome of the exchanges’ proposed merger.
However, Mr Bellegard told the FIX Protocol Europe, Middle East and Africa event that: “No decision had been taken” on whether to use Eurex or even go with LCH. Clearnet.
He said it was unlikely there would be another CCP in the market and described the fierce price cuts as “unsustainable”. “It will drive one or two CCPs out of business. The game …is for market customers,” he said.
He also described EuroCCP’s growth in market share as “very interesting”, as it was clear CCPs would need to have scale and be profitable. EuroCCP, owned by The Depository Trust and Clearing Corporation, is largely governed by its users and operates an at-cost model but has been lossmaking for several years.
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