As European clearers prepare for some 50 per cent of the cash equities market to open up over the next couple of months, interoperability, or the lack thereof, is the hot topic among post-trade services providers.
“Most markets have been and are organised along their domestic infrastructures,” says Tomas Kindler, head of clearing relations at Six Securities Services, speaking on the sidelines of the Sibos payments and settlements conference in Toronto.
“What we have seen with MiFID, on the trading layer, was the introduction of competition in the form of MTFs. That is cascading downwards in the value chain and has reached clearing, eventually it will reach the CSD layer potentially with T2S as a catalyst.”
Over the next six months, SIX x-clear is set to become interoperable with Chi-X Europe, Turquoise and Nasdaq OMX Nordic when those projects go live, though the latter is yet to be announced.
“It is happening, it is becoming real, the Swiss market and the UK market have migrated to the new interoperability framework,” Kindler says. “The vertical versus horizontal is in some ways a dogmatic debate, there are fans of either model, but from an exchange point of view the vertical model has come out as the preferred one.”
The point is behaviour, not structures, he says. Six Group in Switzerland is a vertically integrated organisation, but open at every level - the exchange, for example, uses LCH.Clearnet as a second clearing house in addition to SIX x-clear, which in turn uses other settlement agents. The problem, he notes, are some markets that have hung on to the vertically integrated, but closed model – Germany, Spain, Italy, Poland and Greece, for example.
“From a commercial point of view, there is downside potential opening up and maybe not a lot of upside potential depending on how competitive you already are today,” Kindler says. There are still some markets in the EU that have successfully resisted being MiFID compliant.”
The Spanish stock exchange, as a case in point, keeps clearing and settlement in-house while MTFs have struggled to gain market share, he adds. Compare this to the London Stock Exchange, which just last week lost its top spot for European equity trading to Chi-X Europe.
“It remains to be seen whether MiFID II, Emir and potentially additional regulation will help these [closed] markets open up,” he says.
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