A New Report From Aite Group
The existence of multiple clearing venues across the European region has led to frustration and market inefficiencies; despite this, the promise of interoperability exists.
A new report from Aite Group examines the evolution of equities clearing in the European market. It explores clearing via the central counterparty (CCP) model, and unravels the complex cost structure for clearing in Europe.
Since the 2007 passage of the Markets in Financial Instruments Directive (MiFID), CCPs have come to play a pivotal role in the marketplace: They provide a multilateral hub for trading a multitude of products, essentially protecting their clients from counterparty risk in a trade. Through the netting process, they are also able to provide their clients with a single net settlement for a particular security. The complexity of the European market means that traders can trade across multiple venues and end the day with a flat position; it also means, however, that traders remain subject to margin requirements due to clearing-related inefficiencies. Today’s movement toward interoperability between European CCPs bodes well for trading firms, but clearing fees in Europe are high compared with those in the United States.
“While the control of CCP services currently lies with execution venues, trading firms—the users—pay for these services,” says Simmy Grewal, analyst with Aite Group and author of this report. “A necessary power shift can be achieved through CCP interoperability, which will allow users to choose their CCP, leading to pricing competition.”
The report profiles the following CCPs in the European equity trading space: Cassa di Compensazione e Garanzia S.P.A. (CC&G), EMCF N.V. (European Multilateral Clearing Facility N.V.), Eurex Clearing, EuroCCP, LCH Clearnet Group, and SIX x-clear AG.
This 41-page Impact Report contains 29 figures. Clients of Aite Group’s Institutional Securities & Investments service can download the report by at the Aite Group website.
