The Irish Stock Exchange and Deutsche Borse agreed to extend the Xetra agreement, due to terminate at the end of 2005, by a further five years to expire 2010.
CRESTCo, which offers settlement services to the ISE, the London Stock Exchange, virt-x and LCH.Clearnet, will continue to settle ISE trades. In addition, the ISE will further expand its existing arrangements with Deutsche Borse and CRESTCo: Deutsche Borse and ISE intend to provide the Irish equity market with a central counterparty (CCP) service. Deutsche Borse and ISE have already signed a letter of intent, contractual arrangements are still to be concluded among the parties. Customers will benefit from this further enhancement to the trading and post trade infrastructure in the Irish market.
Eurex Clearing AG, which offers the full CCP services for the Frankfurt Stock Exchange (FWB) and the derivatives exchange Eurex, will perform risk management for transactions in the Xetra electronic orderbook of the Irish Stock Exchange. CRESTCo intends to offer the same clearing services to the ISE, such as trade validation and netting, as it does for the UK market at present. To this end, these transactions will be automatically conveyed via the CCP, from Xetra to Crest. This will allow all participants in the Irish equity market to continue to use their existing infrastructure for trading and settlement. Regulatory authorities have been briefed on these proposals which are subject to regulatory approval.
The ISE in Dublin was the second exchange, after the Vienna Stock Exchange, to work in partnership with Deutsche Borse by leveraging the trading system and operations for its autonomous market.
With the new CCP functionality, the ISE is expanding its two-stage process chain in the cash market – trading and settlement – by adding clearing. Eurex clearing will function as the counterparty for equity transactions: for every trade it will be the counterparty for both buyer and seller. The introduction of a central counterparty offers substantial advantages for trading participants: so-called ‘post-trade anonymity’ means that all orderbook transactions remain anonymous even during settlement; participants are offered centralised risk management with prompt calculation and referencing of individual risk items, as well as margin requirements based on Eurex Clearing AG’s existing risk-based margining model; Eurex Clearing also bears the risk of counterparty default.