Advocating for CCP interoperability

Diana Chan

Through a wide variety of experience from across the industry, Diana Chan is now in a position to give Europe more of a choice in selecting a CCP

Diana Chan has worked in most areas of securities services, including at an international central securities depository (ICSD), a global custodian, an agent bank and a central counterparty. She calls this experience “four different layers in the last 31 years.”

Chan’s securities services industry career began in 1983 with Euroclear, which was then a Eurobond depository. During her 11 years at the company, one of her memorable responsibilities, when she headed the management information and profitability analysis team, was to prepare a “cost benefit analysis to justify buying the first PC at Euroclear. Back then, that was a revolution as everything was mainframe.”

Another memorable change came in 1989, when Chan recalls the Group of Thirty, a think tank of leaders from the industry and academia, produced nine recommendations for practices essential to the efficient functioning of a global securities market. Central securities depositories, delivery versus payment, rolling settlement, and the use of International Securities Identification Numbers (ISINs) were among the recommendations that were adopted in securities markets worldwide.

At that time, Euroclear was trying to diversify beyond Eurobonds, and Chan was responsible for its entry strategy into new markets. She recalls: “Some market players in Asia talked about building Asiaclear. The name was captivating but there was no need; it was a concept looking for a purpose.” She instead suggested that Euroclear extend operating hours and set up an office in Hong Kong. “In those days the concept of being a global player was not yet there. Information about how other markets operated had to be researched by going there; nothing was online yet,” she says.

Following Euroclear, Chan ventured into global custody when she joined J.P. Morgan’s investor services business in Singapore as regional head of network management. In Asia back then, and probably still to a large extent now, securities market practices were very diverse. “There is a huge difference today in the range and the quality of tools that are available to do this job,” says Chan. “One of the projects I enjoyed very much was to help Bangkok Bank set up an award-winning agent bank business in Thailand.”

Chan then joined Citi’s agent bank network in Asia as regional head of product management. Instead of being the purchaser of agent bank services, as her previous role required, she was providing services to Citi’s client base, which mainly consisted of the larger broker-dealers with high volumes of back-to-back transactions. Some of them wanted to be direct members of CSDs but outsource their back-office operations. That was when Chan coined the term “account operator” to define that new service, shortly after she moved to New York and became global head of Citi’s services for the broker-dealer client segment.

It was around that time that Europe beckoned again. In 2001 the first Giovannini Report was published, highlighting 15 barriers to efficient cross-border settlement in the European Union. Chan began travelling to Europe in her global product management role at Citi. “Shortly after, Euroclear launched the single settlement engine project that would combine the national CSDs in the group with its banking business on a single platform. The agent banks wanted an infrastructure to serve them and not leverage its position to compete with them. The role confusion eventually came to an end several years after the ECB decided to build TARGET2-Securities.”

Chan’s subsequent move to EuroCCP in 2007 was the culmination of all of the experience in the custody and CSD space. Just prior to her move, a paper that she co-authored on the securities custody industry was published by the European Central Bank.

“I had strong views of what market infrastructures should do,” she says.

Hence at EuroCCP, she worked on central counterparty (CCP) interoperability to ensure that each market participant could channel business to its CCP of choice, instead of being required to use different CCPs chosen by each platform it trades on.

EuroCCP advocated an interoperability convention: a single agreement among CCPs that interoperate that would ensure transparency in risk management and certainty in legal arrangements. The convention was welcomed by trading platforms and market participants but not by the competing CCPs. EuroCCP then published a whitepaper on how to make interoperability safe.

“Finally we caught regulators’ attention, and in early 2010 the regulators of several CCPs jointly issued the first set of requirements on how they wanted CCPs to interoperate safely. What the regulators wanted was slightly different to our proposed solution, but the advantage was that all the CCPs that wanted to interoperate had to comply.

“Many market participants didn’t believe interoperability could ever be achieved, but we got it done, she says. BATS Europe became the first interoperable trading platform with multiple CCPs clearing on a competitive basis in mid-2011. When other platforms followed suit, a significant volume of business went from the incumbent CCP to the new competitors. Market participants clearly wanted choice in where they clear trades.”

In 2013 EuroCCP Ltd combined with its rival European Multilateral Clearing Facility (EMCF) to form EuroCCP N.V. “We need all platforms cleared by any one of the interoperating CCPs to be accessible by all of them. This way, clients can use their CCP of choice without having to incur additional costs,” says Chan.