The financial results for two of Europe's largest equities
clearing houses have highlighted the difficulties faced by the
operators, amid a slump in trading volumes and an increasingly
competitive post-trade environment.
EuroCCP, owned by U.S. post-trade giant The Depository Trust
& Clearing Corp., reported its fifth successive year of pretax
losses, of EUR15.8 million, for the year ended Dec. 31, 2011,
according to accounts filed with Companies House last month. The
losses were EUR1.6 million less than those incurred in 2010.
The London-based operator reported a 27% revenue rise to EUR14.7
million for the year, while its costs increased 5% to EUR30.6
million. Its highest-paid director, who was not named, received
EUR795,000 in remuneration over the year, down from EUR857,000 in
2010. DTCC made an EUR11.9 million capital contribution in February
of this year, the accounts said, to ensure EuroCCP's continued
compliance with U.K. regulatory capital requirements.
Meanwhile, its Dutch rival EMCF, majority-owned by ABN Amro with
Nasdaq OMX holding a 22% stake, reported a near-halving of its
pre-tax profits to EUR7.2 million over 2011, according to the
annual report posted on its website. Its total income fell by 28%
to EUR19.8 million. In a statement accompanying the accounts, Jan
Booij, EMCF's chief executive, said that the firm's "aggressive
pricing strategy did have an effect on [the firm's]
profitability."
The firms are part of a new generation of European clearers set
up over the last five years to support alternative trading
platforms, such as Chi-X Europe, Bats Europe and Turquoise. The
operators stand in the middle of a trade to guarantee against
either party defaulting; a process called novation.
The operators have competed fiercely for clients, a process
which has been intensified by the depressed level of trading
volumes since the 2008 financial crisis. EuroCCP's first key client
was Turquoise, now owned by the London Stock Exchange, and during
2011 it cleared around 7% of European equities trades, according to
statistics from the Federation of European Securities
Exchanges.
EMCF won the original mandate to clear for Chi-X Europe and Bats
Europe, which merged last December to form Bats Chi-X Europe. In
2011, EMCF had a 39% market share, its account said.
However, those shares have altered significantly following the
introduction of widespread interoperability at the start of this
year. Interoperability is a model whereby several clearing houses
can clear for a given trading platform, allowing users a choice
over their clearing provider. It allows trading firms to
consolidate their clearing flows in a smaller number of clearing
houses, and has brought the operators into direct competition with
one another.
EuroCCP and EMCF were two of four clearers to launch full
four-way interoperable services with Bats Chi-X Europe on Jan. 6
this year. Other platforms to have also committed to
interoperability include Turquoise, the Nordic-based Burgundy MTF
and UBS MTF.
The model has benefited EuroCCP, with its market share
increasing to 25% of European equities volumes, according to FESE
statistics. In contrast, EMCF's market share has suffered,
according to market sources and confirmed by Boiij. He told
Financial News: "As expected, our market share was hit when Bats
Chi-X went interoperable. However, it is now growing again and we
are already the second largest clearer on Turquoise, with further
platforms and developments in the pipeline."
Reflecting this fall, Nasdaq OMX said in April that it had
booked a $12m impairment charge on its EMCF investment, which it
bought in 2009 and valued at $27m at the end of 2011.
Diana Chan, chief executive of EuroCCP, said: "The financial
benefits of a threefold increase in volumes passing through EuroCCP
since the launch of full four-way interoperability are not
reflected in EuroCCP's 2011 financial results."
Web site :
http://www.efinancialnews.com/story/2012-10-10/european-clearers-hit-by-competition
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