Clearing the path forward: the evolution of equity clearing

VIDEO | At the PostTrade 360° Nordic 2024 conference, leading figures from the equities clearing industry came together to discuss the evolving landscape of cash equity clearing in Europe and the Nordics. In a session titled “Hear it from the players: the EQUITIES clearing market,” panellists explored the state of interoperability, competition, and regulatory challenges in the market. Laura Bayley from SIX Clearing, Timothy Beckwith from Cboe Clear Europe, and Ivan Gilmore from LSEG each offered their perspectives, with Gabriel Vimberg of SEB moderating the discussion. The session focused on how these developments are shaping the future of clearing across the region.

“It’s a really vibrant and very dynamic environment,” reflects Laura Bayley on the ongoing transformation in the clearing market. She notes the significant impact of regulations like EMIR and its iterations (EMIR 2.0, 3.0). While these regulations have presented challenges, they have also spurred innovation and competition. The acquisition of CCNG by Euronext, she remarked, “mixed up competition,” though she questioned whether the model that Euronext has chosen, being the preferred clearing model, truly benefits market participants. “It does question the status quo,” she added.

Do you want to watch the conference videos? Make sure you are logged in and signed up for the free session video access pass for PostTrade 360° Nordic 2024. Go to My content, click on Our offers and sign up!

The Benefits of Interoperability

Interoperability has been a cornerstone of the clearing industry, particularly in the Nordic markets. “The benefits of interoperability have truly been observed by the industry,” said Timothy Beckwith, noting its positive impact over the past 12 to 13 years. Competition between SIX, LCH, and Cboe Clear has driven market volumes and enhanced services. However, he raised concerns. “we need there to be greater competition and no further barriers.”

When shifting towards pricing and liquidity, Beckwith highlighted that 75% of European cash equity trading is now interoperable, a major achievement. However, as volumes have grown, fees have fallen. “There’s been a race to the bottom when it comes to clearing costs,” said Beckwith , prompting the panelists to consider whether fees had dropped too low. He acknowledged that while fees were low due to competition, the focus remained on maintaining stability and resilience. He added, “We must remain stable, resilient, and financially competent.” Bayley agreed, stressing the need for continuous innovation in a low-margin environment. “We constantly need to innovate because we have this very low-margin business,” she said.

Challenges of T+1 Settlement

A key regulatory challenge on the horizon is the transition to T+1 settlement. While CCPs are prepared for this shift, Beckwith explained that it would have significant operational implications, particularly in terms of margin and settlement processes. “You’ve got one less day to match, one less day to deliver, one less day to borrow,” he noted. Ivan Gilmore expanded on the potential risks, particularly in the event of operational outages. “If there is an outage that is multi-hour, you’ve much, much less time to recover,” he warned, highlighting the complexities of adapting to T+1 in Europe. Both panelists agreed that this change, while driven by regulators, had not necessarily been demanded by the market itself. “The market really hasn’t asked for this, yet it feels it’s being forced on us,” Gilmore observed.

Expanding Markets and Products

In discussing future growth, the panelists highlighted opportunities to expand into new markets and products. Beckwith pointed to new venues like Spotlight MTF in Stockholm, which is set to enter CCP clearing at the end of the year. This will benefit both clients and clearinghouses by increasing cleared volume. Additionally, the growing market for crypto exchange-traded products (ETPs) was discussed as an area of potential growth. Bayley noted that SIX had received its licence for crypto ETPs in 2021, and interoperability has helped foster liquidity in these products. “There’s definite traction,” she said, as crypto assets become more mainstream.

Open Access and Regulatory Momentum

The panel concluded by examining the future of open access provisions. Beckwith highlighted the role of MIFIR open access, which has significantly expanded access for Cboe Clear Europe in the past five years. However, he suggested that there was room for further regulatory adaptations to encourage broader access and interoperability. “There are elements that could be reviewed,” he noted, pointing to potential improvements that could enhance competition and client benefits. one of the elements he mentioned is the timeline and the ability for venues to respond to applications. Gilmore added that he thinks that one real benefit that came out if this, “The idea that CCPs would be able to bring products and new sorts of markets to regulators and have a faster approval process.”

Panellists:
Laura Bayley, head Clearing Services and CEO, SIX Clearing
Timothy Beckwith, head of Commercial and Business Development, Cboe Clear Europe
Ivan Gilmore, head of Cash Equities, LSEG Post Trade

Moderator:
Gabriel Vimberg, head of Derivatives Clearing, SEB