EuroCCP and EMCF merger receives OFT approval
Pan-European clearing houses EMCF and EuroCCP have received approval from the UK consumer authority the Office of Fair Trading to go ahead with their planned merger, announced in July.
The merger, which has still to be approved by the Netherlands’ AFM regulator, represents a consolidation of post-trade infrastructure which should help reduce costs for European equity market participants.
Based in Amsterdam and called EuroCCP, the new entity will combine the risk management and customer service organisation of EuroCCP with the technology and operations infrastructure of EMCF. Current owners of EMCF – ABN Amro Clearing Bank and Nasdaq OMX – and the current owner of EuroCCP – the DTCC – along with BATS Chi-X Europe will become equal shareholders in the new combined clearing house. Chan will be chief executive and Jan Booij, the current chief executive of EMCF will be chief operating officer of the new entity.
The pair have cited a range of benefits from the merger, including:
- substantial settlement cost savings resulting from increased settlement netting and reduced inter-CCP settlements;
- reduced collateral obligations as a result of portfolio margining and a single guarantee fund;
- removal of one set of membership fees;
- improved information technology; and
- lower connectivity expenses.
The deal was referred voluntarily to the OFT in August.
“We are grateful to the OFT for reaching a swift decision in relation to combining EMCF and EuroCCP and we are pleased that their conclusions support our own assessment that bringing the two companies together is in the best interests of competition in the clearing of European cash equities,” said Chan.
The number of clearing houses in Europe has been debated for some years, with some participants expressing concern that there were too many CCPs and that liquidity is too fragmented. Others complained about the cost of connecting to multiple CCPs across the region, and compared it unfavourably with the US, where post-trade services are handled by utility the DTCC, which owns EuroCCP. While post-trade costs have come down in Europe since MiFID in 2007, it has been estimated that the European market is still less efficient, in part due to the absence of the economies of scale found in the US.