The central counterparty service, which will be operated by LCH, will offer significant benefits to the UK securities markets by the introduction of post trade anonymity and enhanced risk management for trades executed on the order book. It also provides the infrastructure to allow for the future introduction of settlement netting to reduce the cost of trading in the UK.
The Exchange's test service started on 4 December 2000. This allows trading participants the chance to put to the test the new elements of post-trade anonymity; separation of business to LCH "house" and "client" accounts; and changes to the contra process. The participants testing include host-to-host customers, their software houses, and workstation vendors.
Testing for CREST and LCH software houses started on 13 December 2000. Further comprehensive testing phases will become available in January and February 2001.
In its first phase, the central counterparty will settle each trade with market participants on an 'as dealt' basis. It will be capable of clearing and settling the expanding volumes on the UK securities markets.
The second phase of the programme will introduce optional settlement netting, increasing operational efficiencies and cost savings for users. This phase is planned for introduction in the first quarter of 2002.
The platform's flexible design will allow it to be extended to other equity markets in the future.
Martin Wheatley, director of Business Development at the Exchange, said: "The important customer testing phase demonstrates that we are on target to introduce the central counterparty in February next year. This initiative demonstrates London's ability to deliver practical solutions, which are scalable to meet the strategic needs not just of the UK market, but for Europe as a whole. When implemented, the central counterparty will represent a major step in the evolution of Europe's market infrastructure."
Iain Saville, chief executive of CRESTCo, said: "The successful start of testing is a significant step forward. Bringing together the infrastructure of the UK's dominant providers of trading, clearing and settlement will create a world-leading central counterparty structure for the UK securities markets."
David Hardy, chief executive of LCH, said: "the London Stock Exchange will be the first exchange utilising LCH's EquityClear service. As with all new services, member testing is one of the most critical phases of implementation. In order to ensure a successful commencement and to avoid all round duplication of investment, LCH is working closely with CRESTCo, who will be providing access to their existing technology. This approach is, we feel, wholly in line with market expectation as expressed in the principles published by the European Securities Forum."
