22 December 2014

Gary Wright

Gary Wright - BISS Research

277Posts 921,588Views 369Comments

Post-Trade Forum

The Post Trade Forum's aim is to propagate debate and discussion between senior practitioners in Post Trade Operations in the global securities market; to bring about increased awareness and knowledge across both buy-side and sell-side financial institutions in financial products and be a focal point for firms and practitioners to air views.
A post relating to this item from Finextra:

Nyse to invest $85 million in new European derivatives clearing house

28 March 2012  |  5660 views  |  0
Nyse Euronext is to spend $85 million on developing a new clearing house for its derivatives business in Europe, terminating an existing relationship with LCH.Clearnet.

A new Clearing House; new law brings consolidation closer

30 March 2012  |  4856 views  |  0

News that NYSE Euronext is planning to build their own Clearing House for derivatives and is very interesting and a possible indictment of the quality of choice of alternative Clearing Houses in the market. It was obvious that there would be some moves by NYSE Euronext away from LCH.Clearnet as soon as the London Stock Exchange Group increased their holding becoming the largest shareholder. At the moment they only intend building a clearing house for derivatives, leaving cash equities at LCH.Clearnet. Will this remain a long term arrangement is anyone’s guess.

We can assume NYSE Euronext looked closely at existing clearing houses for derivative clearing and concluded none met their needs.

What does this say about the fragmented market for clearing houses creating choice and competition? Obviously in NYSE Euronext eyes, not a lot!

We can clearly see a pattern emerging now with three top Stock Exchanges all moving into the vertical silo model. This is a direct reversal of ten years ago when the vogue was for a horizontal model, offering a choice of clearing house to customers of Stock Exchanges.  The Deutsche Börse of course has never deviated from its vertical structure, as it produces huge returns and of course cements the relationship with its users.

Where does this leave the many clearing houses that are unaffiliated? Interoperability offers a way of maintaining their business but for how long? The more logical conclusion is that clearing house consolidation will be accelerated. Could this mean that all the remaining clearing houses will come together to offer an independent fourth choice to the market? Interoperability would make that a possibility. On paper at least but then again, logically it’s unlikely, but expect further consolidation at the Exchanges end, which will percolate down to the Clearing House.

The NYSE Euronext decision looks like the market is moving into a new phase and this could be vitally important with the impact of OTC entering Exchanges and Clearing. Certainly those who expressed concerns around the ability of the balance sheets of clearing houses in accommodating OTC should be somewhat relieved, by having a tight vertical silo of powerful Stock Exchanges. Now we see the first laws passed forcing OTC onto Exchanges and into clearing houses but what does it all mean and what path is being laid? The future of clearing in Europe and Clearing House risks will be debated at the next Post Trade Forum on the 17th April at the London Stock Exchange.

Comments: (0)

Comment on this story (membership required)
Log in to receive notifications when someone posts a comment

Latest posts from Gary

Wealth Management - Turkeys Vote for Christmas

27 September 2013  |  2671 views  |  0  |  Recommends 0

The future of systems in financial services

29 July 2013  |  2618 views  |  0  |  Recommends 0

Social media and trust in financial markets

25 June 2013  |  4911 views  |  0  |  Recommends 0

Technology changing the markets

25 June 2013  |  2561 views  |  0  |  Recommends 0

Technology begins to change

14 June 2013  |  2120 views  |  0  |  Recommends 0

Gary's profile

job title Analyst
location London
member since 2007
Summary profile See full profile »
CEO of B.I.S.S. Research, founder of the BISS Independent Accreditation for all systems and services provided to financial services companies internationally. Guest Lecturer at Reading University and...

Gary's expertise

Who is commenting on Gary's posts