With the advent of central counterparty (CCP) interoperability in Europe, 2011 has been the year where we have finally witnessed competition at the clearing layer of securities trading. Recent interoperability agreements between CCPs represent enormous progress,
but there is still a long way to go before we have a truly competitive European post-trading environment. According to a new from Aite Group,
European Equities Clearing: The More You Clear, the More You Save
“The existence of multiple clearing venues across the European region has led to frustration and market inefficiencies; despite this, the promise of interoperability exists.”
Over the coming 12 months, competitive pan-European solutions will be established. Yet, many domestic markets, such as Spain, Italy, Germany and the Euronext markets, will continue to operate under post-trade monopolies. It is not hard to see why. Vertically-integrated
infrastructures in many of these markets provide end-to-end services from trading right through to clearing and settlement and simply do not see an incentive to open up.
Consequently, interoperability and increased competition will not apply across all of Europe. This means that the consolidation that is so desperately needed to make Europe a more efficient trading environment is unlikely to occur in the short-term. With
such a high number of CCPs, trading conditions are far from optimal, as clients are required to post collateral to every CCP they choose to use. With so many partners, counterparty risk is also increased unnecessarily.
Heightened pressure from both governments and regulators is required to open up the markets. However, it remains to be seen whether EMIR and MiFID II will address this issue. We can only hope that they will trigger the market interoperability needed to create
the competitive post-trade industry that has long been anticipated.