Nasdaq OMX Postpones Competitive Clearing in Scandinavia
(STOCKHOLM) The Nordic exchange arm of Nasdaq OMX Group Inc. said that it will delay the introduction of competitive clearing in Nordic cash equity market beyond the April 2012 target date, according to a recent Securities Technology Monitor article.
Nasdaq OMX Nordic has worked to develop a competitive cash clearing model since 2009, but company executives said that ongoing regulatory concerns could not be addressed by the deadline. “We are convinced that it will act to drive liquidity and lower investor costs, thus benefiting our clients and the European capital market as a whole,” said Hans-Ole Jochumsen, President of Nasdaq OMX Nordic in a statement. “However, there is still uncertainty regarding the detailed requirements for interoperability even though there is a political agreement.” “There needs to be clarity and a level playing field in this area, before we can introduce interoperability,” hesaid.
Central counterparty clearing and interoperability involves the legal transfer of obligations to a central counterparty. Interoperability occurs when different clearinghouses are able to work together via a common set of formats and use the same protocols, among other things. In the case of interoperability for counterparties, this allows market participants to choose the CCP they prefer to use, thus increasing competition. CCP interoperability also enables cross netting of trades for firms that use the same CCP for transactions executed on different trading venues, which enables cost savings for example from fewer settlements and simpler operations. However, getting the right regulatory framework together hasn’t been easy. For example, the European Markets Infrastructure Regulation (EMIR) outlines the principles to guide interoperability for cash equities, and it has political support. However, there are still technical issues that need to be ironed out. The European Securities and Markets Authority will draft technical standards, along with European System of Central Banks, by December 2012.
Meanwhile, another technical authority, Committee on Payment and Settlement Systems and the Technical Committee of the International Organization of Securities Commissions, is hashing out its own recommendations for standards governing this issue, titled “CPSS-IOSCO principles for financial market infrastructures.” When these new principles are finalized, they will replace three already existing sets of standards promulgated by the CPSS. The goal is that relevant European financial agencies will incorporate these principles in their legal and regulatory framework by the end of 2012. However, regulators will still need to figure out how these principles will interact with other existing regulations, such EMIR, the regulations of ESMA as well as MiFIR, the Markets in Financial Instruments Regulation.
Interoperable clearing has been a long-time coming in Europe. In January, BATS Chi-X Europe launched a service that allows its customers to choose to clear trades at any of four European clearinghouses: European Multilateral Clearing Facility , EuroCCP, LCH.Clearnet and SIX x-clear to clear trades. EuroCCP, the European clearinghouse subsidiary of Depository Trust & Clearing Corp., won approval from the U.K.’s Financial Services Authority to provide clearing services for multilateral trading facilities under what are called “interoperable” arrangements. It now clears equity trades in 19 markets, including Turquoise, SmartPool, NYSE Arca Europe, Pipeline Financial Group Limited and Sigma-X MTF.
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