UK-registered clearing house EuroCCP has called for the adoption of a single standard 'Convention on Interoperability' that all central counterparties should sign, as the European clearing community struggles to implement a raft of bilateral agreements.
The Convention, designed as a framework agreement, would require CCPs to agree on risk management arrangements that are transparent to market users, platforms and regulators, says EuroCCP chief Diana Chan.
"While a number of Europe's CCPs, including EuroCCP, have announced plans to interoperate, the negotiations are bilateral. Four CCPs interoperating require six bilateral contracts. Six CCPs interoperating will require 15 contracts," she says. "By creating a Convention that incorporates common standards around key elements of risk management, change management, and dispute resolution, we believe CCPs can join together in greatly simplifying and expediting the achievement of interoperability, to the benefit of market participants throughout Europe."
Among the various interoperability plans announced by CCPs are: EuroCCP, EMCF and x-clear will have interoperability to serve Nasdaq OMX users; EuroCCP, LCH.Clearnet and x-clear will interoperate to serve Turquoise; and EMCF, LCH.Clearnet and x-clear plan to establish interoperability to serve Chi-X.
EuroCCP contends that the absence of a standard legal agreement on the implementation of risk management among interoperating CCPs could handicap meaningful competition.
An Interoperability Convention will ensure that risk is shared even-handedly and transparently between interoperating CCPs, rather than offloaded by one CCP onto another, says Chan.
"We owe it to our customers and to Europe's investors to find a faster solution to this issue. There must be complete transparency in how CCPs manage their exposure to each other, so that trading venues, market participants and regulators have the full picture and comfort that the risks are under control," she says.
EuroCCP believes the Convention should be developed in collaboration with other CCPs who have already agreed to interoperate.