European Central Counterparty gets green light for March launch
European equities clearing houses EMCF and EuroCCP have completed their merger transaction and chosen a new name for the merged company, following the final approval by Dutch central bank De Nederlandsche to the group’s shareholder organisations the DTCC and BATS Chi-X Europe.
The new entity, European Central Counterparty, will come into being on 6 January 2014, and promises to bring cost reductions in post-trade for European financial institutions. The group’s other owners include the Netherlands’ ABN Amro Clearing Bank, and Nasdaq OMX. Customers are expected to be moved across to the new company by the end of March.
“With the final approval in place and the transaction complete, we can now turn all of our energies to making European cash equities clearing more streamlined and competitive as well as delivering the service innovation that all of our customers want,” said Diana Chan, chief executive-designate of EuroCCP.
The deal was originally announced in March, but it has taken until now to get all the necessary regulatory approvals in place. The UK Office of Fair Trading gave its green light to the deal in October. The ostensible benefits of the merger (according to the two firms) include:
- 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 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.