Source: Deutsche Börse
Deutsche Börse AG will continue to operate the trading system of the Irish Stock Exchange (ISE), as the two companies announced on Thursday.
Ahead of schedule, the ISE and Deutsche Börse agreed to extend the Xetra agreement, due to terminate at the end of 2005, by a further five years to expire 2010.
CRESTCo, which offers settlement services to the ISE, the London Stock Exchange, virt-x and LCH.Clearnet, will continue to settle ISE trades. In addition, the ISE will further expand its existing arrangements with Deutsche Börse and CRESTCo: Deutsche Börse and ISE intend to provide the Irish equity market with a central counterparty (CCP) service. Deutsche Börse and ISE have already signed a letter of intent, contractual arrangements are still to be concluded among the parties. Customers will benefit from this further enhancement to the trading and post trade infrastructure in the Irish market.
Eurex Clearing AG, which offers the full CCP services for the Frankfurt Stock Exchange (FWB) and the derivatives exchange Eurex, will perform risk management for transactions in the Xetra electronic orderbook of the Irish Stock Exchange. CRESTCo intends to offer the same clearing services to the ISE, such as trade validation and netting, as it does for the UK market at present. To this end, these transactions will be automatically conveyed via the CCP, from Xetra to Crest. This will allow all participants in the Irish equity market to continue to use their existing infrastructure for trading and settlement. Regulatory authorities have been briefed on these proposals which are subject to regulatory approval.
Commenting on the arrangement, Rudolf Ferscha, member of the Executive Board of Deutsche Börse with responsibility for trading and clearing services said: "The early extension of the agreement is a testimony to our successful cooperation with the Irish Stock Exchange, as well as to the reliability and attractivness of our Xetra electronic trading system." Ferscha added: "With our provision of CCP services to the Irish market we will for the first time provide clearing services for markets outside of the Group. This expanded business partnership with the Irish Stock Exchange underlines the quality of our outsourcing and technology services."
The Irish Stock Exchange's Brian Healy, Director of Trading and Regulation, commented: "The partnership with Deutsche Boerse has served the Irish equity market well - trading volumes have increased by over 130% since the launch of ISE Xetra and it has facilitated us in increasing international participation in the market, with now over a third of our trading members accessing the trading platform from outside Ireland. The launch of an Irish central counterparty is a natural next step and in particular the introduction of post trade anonymity should further enhance price formation and secure the Exchange's position as the centre of liquidity for the trading of Irish equities."
The ISE in Dublin was the second exchange, after the Vienna Stock Exchange, to work in partnership with Deutsche Börse by leveraging the trading system and operations for its autonomous market.
With the new CCP functionality, the ISE is expanding its two-stage process chain in the cash market - trading and settlement - by adding clearing. Eurex Clearing will function as the counterparty for equity transactions: for every trade it will be the counterparty for both buyer and seller. The introduction of a central counterparty offers substantial advantages for trading participants: so-called 'post-trade anonymity' means that all orderbook transactions remain anonymous even during settlement; participants are offered centralised risk management with prompt calculation and referencing of individual risk items, as well as margin requirements based on Eurex Clearing AG's existing risk-based margining model; Eurex Clearing also bears the risk of counterparty default.
In its capacity as an international outsourcing and technology partner, Deutsche Börse has operated the Xetra trading platform for the Vienna Stock Exchange since November 1999, and for the ISE in Dublin since June 2000. Additionally, electricity trading on the European Energy Exchange (EEX) in Leipzig is run on Deutsche Börse technology. The Shanghai Stock Exchange, which operates the largest Chinese equity market, will use Xetra technology in the future as the core of its new trading platform. Eurex Clearing is a subsidiary of Eurex, a joint venture of Deutsche Börse and SWX Swiss Exchange.
Separately, CRESTCo, at the request of the Irish Stock Exchange, has agreed in principle to offer services for the clearing and settlement of Irish equity trades netted through a central counterparty (CCP), subject to conclusion of satisfactory contractual arrangements. The Irish Stock Exchange has informed CRESTCo of its decision to use Eurex Clearing as the CCP.
The services to be offered by CRESTCo will be similar to those currently supplied by CRESTCo for London Stock Exchange trades netted through LCH.Clearnet and for virt-x trades cleared through either LCH.Clearnet or x-clear. CRESTCo is ready to offer its clearing and settlement services for Irish equities through any other suitable CCP as well.
Driven by its commitment to respond, first and foremost, to user needs, CRESTCo remains stock exchange and CCP neutral. CRESTCo looks forward to working in accordance with a similar policy of neutrality from other providers, particularly in the context of the current merger discussions with the London Stock Exchange.
CRESTCo Limited operates the real-time securities settlement system for Irish, UK, Jersey, Isle of Man, Guernsey and international securities through the CREST system. CRESTCo Limited is a wholly owned subsidiary of Euroclear SA/NV.