Study Shows EuroCCP Has Lowest Clearing Costs in Europe
A study published July 1 by DTCC’s European subsidiary, European Central Counterparty Limited (EuroCCP), has found it offers the lowest costs for clearing in Europe based on tariffs disclosed by all service providers, as required under the European Code of Conduct for Clearing and Settlement.
A comparative analysis conducted by EuroCCP over the month of June found the average cost for clearing paid by financial firms was 26 eurocents, whereas EuroCCP’s anticipated average cost will be 2.9 eurocents per transaction (see chart). EuroCCP’s highest cost is 6 eurocents per transaction.
“This research further underscores EuroCCP’s value proposition,” said Diana Chan, chief executive officer of EuroCCP. “The trading platforms and exchanges that use EuroCCP will benefit by offering a more competitively priced, combined trading and clearing environment. Financial firms that use EuroCCP will gain advantage from our ‘at-cost’ business model that returns excess revenue to our customers and that continually drives down fees. EuroCCP clears for multiple trading venues so financial firms cannot only net down the number of settlement obligations but also reduce the amount of collateral needed.”
Significant potential savings
The study found, based on publicly disclosed tariffs and information, that if EuroCCP were used to clear all trades in Europe today, the annual cost savings to financial institutions “would be nearly €350 million [£277 million] in 2008.”
“MiFID and the Code of Conduct have been successful in unleashing competitive market forces and providing pricing transparency,” said Chan. “Since the European authorities announced their intention to allow new entrants for trading and clearing securities, established markets and central counterparties have slashed their fee structures – and more can be expected.
“We are committed to leading the way by being the low-cost pan-European clearing and settlement provider to multilateral trading facilities [MTFs] as well as exchanges, offering them unparalled efficiency, capacity, safety and business resiliency.”
Background on the study
The EuroCCP study was conducted over the month of June, looking at pricing data made available by various central counterparties (CCPs) throughout Europe under the terms of the voluntary European Code of Conduct. The report describes the methodology used to calculate the average clearing cost per transaction for that organization and for the average costs for all of Europe as well.
“While there’s disclosure of tariffs, there’s no uniform reporting method: different CCPs have different pricing schemes; almost no CCPs have a single constant fee for clearing all trades; CCPs may provide different functions; there may be different types of trades executed on an exchange, which incur different clearing fees; and there may be rebates on various fees, which are difficult to assess in importance,” said Neil Henderson, a EuroCCP managing director who worked on the study.
“We did not include in the study consideration of certain additional costs that financial firms incur, such as annual membership fees, connectivity fees and the opportunity costs for losing interest on cash margin held at a CCP,” said Henderson. “EuroCCP will not keep any of the interest earned on its participants’ cash margin payments, but most other CCPs in Europe do.”
Although some CCPs have publicly disagreed with the study’s findings, none has so far stated what its correct average cost is, how it should be computed and what information is available in the public domain to arrive at that cost.
More on EuroCCP
EuroCCP has already been chosen by Turquoise and SmartPool, two new MTFs that are expected to gain significant market share once they launch this fall. Both of these trading platforms offer a value proposition based on lower aggregate trade execution and clearing expense. EuroCCP has a non-exclusive relationship with the platforms it will support and is actively engaged in discussions with other MTFs as well.
EuroCCP offers the safety, reliability and 35-year track record of DTCC’s family of companies, which can currently deliver the processing capacity to handle up to 280 million transactions in a single day. The European markets looked at in the study had a combined six million transactions in a single day.
Chan noted, “We have ‘scale for sale.’ We can provide that same low cost for clearing to traditional exchanges as well as MTFs. In a fast-changing competitive landscape for trading venues, clearing costs can be a differentiator. Ultimately, of course, the beneficiaries will be European investors, who will be able to trade more frequently at a lower cost in more venues than ever before.” @
[To view the complete cost comparison study, visit www.euroccp.co.uk.]
