Spain braces for major post-trade overhaul
Dramatic reforms to the post-trade environment in Spain are poised to change the way trades are settled, as one of Europe’s top five markets prepares to open an equities CCP for the first time next year.
Until now, Spain has been something of an outlier within the European markets, due to its unusual settlement system which requires securities to be re-registered after they have been traded to reflect the new holder of the security. There is no CCP in Spain at present, so the process is managed by the central securities depository Iberclear. But since Iberclear is not a CCP, the risk of the trades remains with the participants, introducing higher counterparty risk and potentially higher costs overall.
However, prompted by European harmonisation driven by the European Central Bank under T2S, Spain is being forced to make fundamental changes to its post-trade infrastructure. From October 2015, BME group will operate a CCP for Spanish equities. BME already operates a CCP for derivatives through its BME Clearing subsidiary. The new equities CCP will be called Arco, and the introduction of a CCP for equities is expected to make a significant difference to Spanish post-trade efficiency.
“This will allow netting – it’s a hugely positive move for settlement in Spain and will also allow derivatives contracts to become fungible with securities,” said Nathan Renyard, head of post-trade at BATS Chi-X Europe. “In addition, the registration of securities will be moved further back in the process. It’s a big improvement for Spain, one of Europe’s larger markets.”
As a result of these changes, Spain is the only major European market to remain on T+3 settlement – when 27 other European countries moved to T+2 on 6 October, it was considered “unreasonable” to expect Spain to follow at the same pace, according to Renyard. Spain is due to adopt T+2 by November next year, and is due to implement T2S in 2017.
“There is no novation in Spain today,” Jesus Benito, chief executive at Spanish CSD Iberclear told Banking Technology. “Important changes to the post-trade structure in Spain are coming. When these reforms to the securities market are complete, we will advance in harmonisation with Europe, and this will help our market to compete with the US and other markets internationally.”
Benito added the settlement procedure for the BME and for alternative trading venues such as BATS Chi-X Europe is different in Spain today. Under the new T2S regime Spain is adopting, settlement processing will be done exactly the same for both, leaving no advantages or disadvantages for either party.