LONDON--Europe's two largest cash equities clearinghouses on
Thursday announced plans to merge and draw in a new U.S. partner in
an effort to compete in a market struggling with share trading
volumes at a 10-year low.
EuroCCP, the platform owned by U.S.-based Depository Trust &
Clearing Corp., signed a memorandum of understanding to combine
with smaller rival European Multilateral Clearing Facility, or
EMCF, forming a new entity in which a unit of BATS Global Markets
Inc. would take a 25% stake.
Clearinghouses stand between the parties in a trade and
guarantee it takes place in the event of a client default. Recent
market reforms in Europe have allowed customers to shop around
between venues, leaving some of the platforms to nurse losses.
EuroCCP Chief Executive Diana Chan said banks and trading firms
have been pushing for consolidation in the fragmented clearing
landscape to cut transaction costs.
"We don't expect equities trading to grow, and there are
unlikely to be many new platforms coming to the market," she said
in an interview. "It's a good time for the post-trade market to
become more simple and rational by combining."
The new company would retain the EuroCCP name and be led by Ms.
Chan, with DTCC retaining a 25% stake, equal to that held by EMCF's
co-owners, a unit of ABN Amro NV (ABNYY) and Nasdaq OMX Group Inc.
(NDAQ).
DTCC, the dominant clearer for stock and bond deals in the U.S.,
launched a strategic review of its European business following an
aborted effort to merge with LCH.Clearnet, one of the region's
largest clearinghouses for securities and derivatives.
Switzerland's Six Group owns the other large equities clearer.
Combining EuroCCP and EMCF is intended to cut transaction costs
by eliminating one set of membership fees and connectivity
expenses. The companies said it would will also reduce the amount
of collateral posted against trades and the number of settlement
fees.
The proposed deal would also see Bats Chi-X Europe, which
operates the region's largest share trading platform by volume,
take a stake in a European clearing house for the first time.
BATS Chi-X Europe lacks an interest in a clearinghouse and has
long campaigned for competition in the sector. By contrast,
incumbent exchanges have traditionally forced firms trading on
their markets to use a designated clearer, frequently its own
in-house operation.
Mark Hemsley, chief executive of BATS Chi-X Europe, said in an
interview that its planned stake was intended to prevent the two
clearinghouses from falling into the hands of rivals.
"It's a good thing for the market to have an independent
platform, and the ownership structure agreed brings a good balance
in terms of the interests of all parties," he said in an
interview.
The company will operate EMCF's technology infrastructure but
use the risk management framework of EuroCCP.
EuroCCP was established by the DTCC in 2007 to take advantage of
efforts to stimulate competition in European trading and clearing.
The company went on to benefit from competition and grab a large
chunk of market share, but the company has failed to turn a profit
in the tough trading environment.
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