TABB Group, in one of its newest research notes, “European Clearing and Settlement: Breaking BarriersBuilding Alliances,” addresses a growing need for improving cross-border clearing and settlement practices, as well as buy-side aggregation of transactions in order to properly handle the downstream effects of MiFID and increasingly fragmented markets.
“There are two major issues for the clearing and settlement frameworks ability to efficiently support the emerging trading market. First, at the central counterparty (CCP) level, new trading venues are introducing new pan-European CCPs because the existing CCPs do not meet their pan-European coverage requirements. This means that multiple CCPs will need to be able to work together efficiently in support of trading in dual-listed stocks. Second, the cost of crossborder clearance and settlement remains unacceptably high and the dividend that should accrue from the creation of a pan-European market is on hold,” says Andrew Howieson, managing director at TABB Group Europe and author of the report.
The report concludes that “European equity markets are undergoing record order volumes and decreasing trade sizes, driving rising processing costs. A potential solution to increasing buy-side settlement costs may lie in adoption of the US markets central clearing model.”
According to Howieson, TABB Group also believes that given the fragmented nature of Europes clearing and settlement structure, in order to gain maximum economies of scale, a buy-side central clearing provider faces the prospect of connecting to all of the six CCPs and 23 CSDs active in the European market, although the level of fragmentation in the European market may not necessitate achieving these efficiencies concurrently.