Although MiFID focuses primarily on trade execution services, new execution platforms need to give market participants freedom to choose the clearing and settlement location that makes most sense for them if they are to provide a competitive end-to-end trading service. Or so claims former LCH.Clearnet executive Willy van Stappen in the latest in a series of white papers on the impact of MiFID sponsored by the proposed MiFID-compliant, pan-European equities trading platform Equiduct.
In the latest of the series of white papers sponsored by Equiduct and written by industry experts, Van Stappen sets out what he sees as the most efficient clearing and settlement solutions for cross-border trades. In the document, he stresses the need for market participants to be able to select the most appropriate clearing and settlement location, whether in their capacity as an intermediary or as an execution venue such as a systematic internaliser.
Equiduct says the white paper is aimed at helping investment firms identify the most appropriate and efficient clearing and settlement model for their business.
The paper looks at three scenarios: where a Central Counterparty is available; where no Central Counterparty is available; and the requirements for Multilateral Trading Facilities or Regulated Markets partnering with a Central Counterparty or a Custodian Bank acting as a Settlement Agent.
For each scenario, Willy Van Stappen identifies the fundamental clearing and settlement requirements including Liquidity, Connectivity, a Standard Settlement Model, Minimal Intermediaries Processing, Fungibility of Stock, and the need for Fees to be set at as low a rate as possible.
“I am delighted that the white paper written by Willy states clearly how under articles 35 and 46 of the MiFID documentation investment firms must be able to freely choose the most appropriate clearing and settlement provider, irrespective of their nationality,” says Equiduct CEO, Bob Fuller. “At Equiduct we believe strongly that there is very little point in building the best execution venue only to end up providing a poor service to customers by making the wrong clearing and settlement decisions. That is why Equiduct, as a pan-European regulated market has been designed from the outset to be completely independent of clearing and settlement services, allowing our participants to select the solution that works best for them.”
Fuller adds that van Stappen now works for Equiduct. “When we first outlined this paper with Willy Van Stappen, he was as independent as all the other authors in our series of MiFID-related white papers,” says Fuller. “However, we should declare that since our first discussions he has joined Equiduct as our Chief Operating Officer. We believe his deep expertise in this sector still makes him a valuable addition to our MiFID series, and we are delighted that he will have an opportunity to turn his vision of clearing and settlement in a post-MiFID world into practice.”
“If RM and MTF want to attract market participants and add real value to their business offering, they must apply exactly the same criteria in developing their post-trade solutions as their market participants themselves use,” adds Willy Van Stappen. “While MiFID will introduce a harmonised regulatory framework for the different types of execution venue, there is currently much less attention paid to post-trade services such as clearing, settlement and custody which actually account for a large part of overall trading costs. Hopefully in this paper I have outlined what exactly constitutes the most appropriate and efficient clearing and settlement for investment firms, and provided the information they need to make the right decisions for their business.”
Until he joined Equiduct as Chief Operating Officer in March 2007, Willy Van Stappen was a Member of the LCH.Clearnet Investment Management Committee and Programme Director responsible for the Equities Integration and Equities Harmonisation Programme. Between 2001 and 2003 he was a member of the Clearnet SA Executive Committee, and was also a Member of the Board of the Belgian CID from 2000 to 2005 as well as a member of the Brussels Euronext Orientation Council. Earlier in his career he was a Member of the Executive Committee of Brussels Exchanges and Vice-President of the Executive Committee of the Belgium Futures and Options Markets.
The Equiduct series of MiFID related White Papers are available for free download from its www.equiduct.eu website.
Previous papers in the series addressed the key requirements of MiFID Equity Best Execution, the importance and unanswered questions raised by the CESR Liquid List, issues related to Market Transparency, and Pre-trade information and the advantages of Consolidated Data. The final paper will provide a checklist of information organisations will need to consider for inclusion in their post MiFID Execution policies.
Equiduct aims to be a pan-European, Belgian-regulated market offering a MiFID compliant, Europe-wide single connection for trading services and execution. It aims to facilitate compliance in the post-MiFID European marketplace by providing a single point of connectivity through its own pan-European regulated exchange, and through the provision of white label services to systematic internalisers or financial institutions that want to operate their own trading facilities. The Equiduct market model aims to address the four key requirements of best execution, by enabling guaranteed execution at the lowest cost and at the best price in a less than 10 milliseconds turnaround time.