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EuroCCP receives FSA thumbs-up as clearing house

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European Central Counterparty has received approval as a UK-recognised clearing house by the Financial Services Authority, solidifying its position as a competitive, low-cost alternative f

European Central Counterparty has received approval as a UK-recognised clearing house by the Financial Services Authority, solidifying its position as a competitive, low-cost alternative for clearing and settlement in Europe.

‘We are delighted that the FSA has granted EuroCCP status as a UK-recognised clearing house,’ says chief executive Diana Chan. ‘Initiatives such as Mifid and the code of conduct are changing the landscape in Europe and allowing new service providers such as EuroCCP to help market participants further reduce transaction costs, improve efficiency and connect more seamlessly in today’s market place.’  

EuroCCP was selected to clear and settle for Turquoise, a new pan-European multilateral trading facility created by a consortium of nine global investment banks that will trade the most liquid equities in Europe. EuroCCP will use Citi’s Global Transaction Services as its settlement agent. 

‘We believe the value that our at-cost, industry-governed business model will be attractive to European capital markets and their participants,’ Chan says. ‘EuroCCP is already in active discussions with other MTF trading platforms to provide clearing and settlement services.’

EuroCCP has reaffirmed its commitment to sign the voluntary European code of conduct for clearing and settlement, allowing for interoperability of its services with other clearing and settlement houses and European trading platforms.

The FSA’s approval of EuroCCP as a recognised clearing house followed an in-depth review of all aspects of EuroCCP’s business arrangements as critical market infrastructure.

Earlier this year, EuroCCP announced the members of a 13-strong board of directors to govern its operations. The directors include three independent members of the industry, two management representatives and eight representatives of participant firms Deutsche Bank, Goldman Sachs, Merrill Lynch, Citi, UBS, BNP Paribas, Credit Suisse and Morgan Stanley. 

The three independent directors are Edouard-François de Lencquesaing, former head of transaction banking and IT at Crédit Commercial de France, Iain Saville, former chief executive of CrestCo, and Derek Ross, a former partner at Deloitte in the UK.

EuroCCP will accept trades from Turquoise and other trading platforms. It will guarantee trades upon receipt and validation, then net all transactions on all platforms in the same security into one amount for settlement per clearing participant.  For trading firms that are not clearing participants of EuroCCP, these trades will be handled through general clearing participant relationships. 

EuroCCP will apply risk-based margining, with appropriate levels of margin collected daily.  Any unsettled obligations will be marked to market each day.

Citi will process EuroCCP’s settlement instructions for delivering and receiving securities and related payments in various currencies through its local securities network at various national central securities depositories. Clearing participants do not need to change their settlement arrangements with existing settlement service providers.

London-based EuroCCP will be operated on an at-cost basis, with any excess revenues collected beyond the cost of supporting the operation refunded to participants.

A subsidiary of the US Depository Trust & Clearing Corporation, European Central Counterparty was formed to provide clearing and settlement services for a range of multilateral trading facilities across Europe. It will initially clear equity trades in 14 countries and  seven different currencies. 

The Depository Trust & Clearing Corporation provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments and over-the-counter derivatives. It is also a processor of mutual funds and insurance transactions, linking funds and insurance companies with financial firms and third parties who market these products.

DTCC provides custody and asset servicing for more than 3.5 million securities issues valued at USD40trn from the US and 110 other countries and territories. Last year, DTCC settled more than USD1.8 quadrillion in securities transactions through its operating facilities across the US and overseas.

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