New Report From TABB Group Focuses On Competition And Partnership In European Equities

According to new report from TABB Group, "Clearing in European Equities Competition and Consolidation," competition in the clearing space across Europe must be accompanied by consolidation to provide a sufficiently robust and commercially viable environment. TABB Group reports that there

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According to new report from TABB Group, “Clearing in European Equities: Competition and Consolidation,” competition in the clearing space across Europe must be accompanied by consolidation to provide a sufficiently robust and commercially viable environment.

TABB Group reports that there has been witnessed some progress in competition among new cost models, partnerships and business models, but they are as the momentum behind further change builds, and CCP clearing is fast moving from a position of cost to a differentiator that will create opportunities and a competitive edge.

Without economies of scale, the limits of the market and pressure on cost make competition unprofitable, which is why CCPs need to consolidate into no more than three clearing houses that can offer sufficient breadth and depth of services and economies to a wide range of members.

At the same time, brokers are reviewing their core competencies and clearing relationships and want just enough competition to promote value for money, allowing them to choose how they balance risk, cost and service. MTFs need new clearing relationships to expand their business models and product offerings. And CCPs need new sources of revenue as costs come under pressure and competing CCPs bang on the door to their market.

While clearing costs have been reduced under pressure to ward off competition, they belie easy comparison, lacking standards or any form of common unbundling. The benefits of cost reduction, she explains, have been negated by rising trade volumes and operational costs.

Accordingly, the lack of competition, high costs and inability to operate at a pan-European level will continue to limit growth.

“Clearing is a volume game and CCPs need to create economies of scale and diversification across markets and industries to leverage common platforms and create multiple revenue streams,” says Miranda Mizen, senior consultant and author of the report, TABB. This is only possible through consolidation of CCP services into larger, more diverse companies that reach across borders.”

“There are more than 80 requests for access and interoperability outstanding, languishing in lawyers’ offices and in CCP inboxes, stuck behind differences in national laws, market practices and facing foot-dragging resistance to competition. Most of the 80 will never see light of day,” continues Mizen.

“The unfettered competition will result in unacceptable complexity and risk and cost to brokers, causing changes in clearing arrangements or execution methods in an effort to reduce the burden.”

L.D.

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