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Clearing House of the Year
Frankfurt-based Eurex Clearing, owned by German exchange operator Deutsche Börse, remains the dominant clearer in longer-dated fixed income futures. But that has not stopped it from diversifying into a range of new products over recent years, including dividend index futures, swap futures and variance futures. A major overhaul of its technology and margin methodology, called Prisma, went live during 2015. Prisma improves members’ ability to post collateral against correlated contracts, thereby reducing their capital outlay. But the operator’s major development during the past year has been the launch of ISA Direct, one of the first direct membership models for buyside firms such as pension funds. The service enables buyside firms to directly post their collateral for derivatives trades and helps avoid clearing brokers having to incur capital charges as a result of holding client margin. The project is in its early stages but has already generated a lot of interest.
Jointly owned since 2013 by Bats Chi-X Europe, Nasdaq OMX, ABN Amro Clearing and the Depository Trust & Clearing Corporation, EuroCCP has become the region’s largest equities clearing house in less than a decade. It has been a landmark year for the company in many ways. It announced in August 2016 that it agreed to widen its ownership group to include Euronext, a move that is likely to accelerate its connections to the exchange operator’s four European markets. In October 2015, it connected to the London Stock Exchange, giving LSE users a wider choice of clearers and enabling them to lower costs. Having offered its services to many of Europe’s largest exchanges, including Bats Europe and Turquoise, for a number of years, linking up with the LSE was a breakthrough. By the end of 2015, at least 10 trading firms had consolidated their UK equities clearing with EuroCCP, helping them to reduce their post-trade costs, including ABN Amro – a major clearing broker for high-frequency trading firms.
ICE Clear Europe
If LCH.Clearnet’s SwapClear rules the roost in longer-dated rates products, then Intercontinental Exchange’s ICE Clear Europe is king of the hill for the shorter end of the curve. It clears nearly four million contracts every day across interest rate, credit and commodity derivatives, and is the largest clearer of short-term interest rate futures in Europe. While ICE itself hasn’t been around as long as some of its competitors, its European clearer boasts a strong pedigree, taking on clearing of the former London International Financial Futures Exchange products, after ICE bought NYSE Euronext in 2011. Like LCH.Clearnet, ICE also faces questions on what the shape of its business will look like post-Brexit, given that it handles a sizeable amount of euro-denominated business.
The London Stock Exchange-owned clearing house has been going gangbusters this year, with the launch of its derivatives cross-margining service, called Spider, and further expansion into equities clearing for multilateral trading facilities, including Goldman Sachs’s Sigma-X. Of particular note, however, has been the continued success of its SwapClear business, which announced in May that it had compressed over one quadrillion dollars in notional since its launch in 2008, from over 8.4 million trades. While the business of euro-denominated clearing faces an uncertain future after the UK’s vote to leave the European Union in June, LCH remains by far the largest clearer of interest-rate derivatives in Europe. In addition to its domestic success, it has also begun to gain recognition from Asian regulators, announcing in 2016 that it was approved by both the Japan Financial Services Authority and the Monetary Authority of Singapore to clear derivatives.
Launched in October 2014, the London Metal Exchange’s clearing business is one of the newer entrants to an increasingly crowded part of the market in Europe, processing between half and three-quarters of a million across futures and options on most days. But it has proved to be ambitious and has a distinct advantage in its strong ties to China and wider Asian countries, given its ownership by Hong Kong Exchanges and Clearing, at a time when most western companies are having trouble establishing themselves in the Far East. This was perhaps most clearly demonstrated by an announcement in late October 2015, where the Hong Kong Futures Exchange and the LME signed a memorandum of understanding to develop a London-Hong Kong Connect programme that would link the two clearers. Although the Brexit vote has halted those plans temporarily, it remains one of the best-placed clearers to profit from strengthened ties between the UK and Asia.