As the competition for market share among European exchanges continues to heat up, two competing models are emerging in the provision of post-trade services to trading partners. Interoperability – the practice of diverse and disparate organisations working together – and the vertical silo model, when the exchange owns and, arguably, controls clearing houses.
Chi-X Europe, a major European exchange with some 20 per cent market share for total turnover, will be the first to offer four-way clearing interoperability to all its trading partners. EMCF, EuroCCP, LCH.Clearnet and Six x-clear will collaborate to offer a full clearing choice by January 2012.
The initiative to provide trading partners with choice of clearing facility has been three years
in development.
“[Getting all the parties to agree] was a diplomatic minefield because there are so many vested interests involved, however, the horizontal model is the one that we very strongly believe in and where the big dominance struggle over clearing and settling trades is going to be in the next few years,” said Belinda Keheyan, director of marketing for Chi-X Europe.
The London Stock Exchange (LSE) and Deutsche Boerse are moving towards the vertical silo model as the two exchanges lose market share to alternative trading platforms like Chi-X Europe. The London Stock Exchange recently announced a majority bid for LCH.Clearnet while Deutsche Borse and NYSE Euronext continue to make their way through regulatory approvals towards a merger.
However, regulators are likely to separate clearing services from the combined Deutsche Boerse and NYSE Euronext entity over competition concerns. Meanwhile, a European Commission draft document is circulating in Brussels outlining rules that prevent member states from blocking access of investment firms and market operators to central counterparty and clearing and settlement systems, according to Reuters.
And just as exchanges are consolidating to compete in the global market place, so too are CCPs expected to follow suit.
“In Europe we have currently over 10 CCPs and we expect the number to get smaller, not bigger,” Keheyan says.
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