European Central Counterparty (EuroCCP) has approved two new firms as participants, increasing the number of approved clearing participants to 21.
The two new firms approved as participants of EuroCCP are Skandinaviska Enskilda Banken AB and Santander Investment Services S.A., and Santander has already gone live. Eleven participants of EuroCCP are general clearing participants who clear for themselves and other trading firms who are not EuroCCP participants. The remaining firms are individual participants who clear only their own trades.
Diana Chan, CEO of EuroCCP, noted that EuroCCP's participation standards are high compared with other clearing organizations in Europe. Admitting financially robust institutions is a central counterparty's first line of defense in risk management. EuroCCP's participation requirements were set in consultation with the first firms who intended to join EuroCCP, in line with the EuroCCP user-governed business model. Trading firms that do not meet the requirements, or which for operational reasons prefer not to have direct participation, can choose to through one of the general clearing participants, and about 40 trading firms currently clear through EuroCCP using general clearing participants.
Because EuroCCP provides a guarantee to settle trades at the price agreed for its participants even if the original counterparty defaulted, the process of bringing on new participants involves an extensive review of potential firms to ensure they can meet their settlement obligations. As a participant of EuroCCP, firms are required to meet rigorous financial requirements, including minimum levels of capital and financial performance standards. After being approved by EuroCCP's risk management and participation departments, each prospective participant firm must also be reviewed and approved by a committee of the board of directors as well. Participant firms are required to put up collateral with EuroCCP that can be used in the event a participant firm is unable to fulfill its settlement obligations. Collateral can be cash, government securities or letters of credit from apedit from approved banks. The level of collateral is adjusted on a daily basis.
"Our volume and the number of participants using EuroCCP has continued to grow, and we are continuing to look at expanding the markets and securities we clear and settle," Chan said. "The debut of both SmartPool and the high frequency trading platform NYSE Arca Europe in the first quarter of 2009 will also bring more volume and participants into EuroCCP."
EuroCCP's volume has continued to grow since operations began, peaking at more than 500,000 transaction in a single day within the first month of full operation. Chan noted that EuroCCP had begun clearing trades in Italian securities in October, and continues to ready operations to expand to cover SmartPool and the high frequency trading platform being set up by NYSE Arca Europe, which are expected to launch in the first quarter of 2009.