- Low cost clearing and netting services for Nasdaq Europe participants
- Fast, efficient cross-border clearing and settlement of European and U.S. equity transactions
- Elimination of counterparty risk with EuroCCP becoming the buyer to every seller and the seller to every buyer
- Netting to decrease the number and value of trade obligations requiring settlement, helping to reduce settlement costs and making it possible to free up capital
- Settlement in a security's home depository, where settlement liquidity is greatest, to reduce the possibility of failed trades
- Advanced risk management techniques, adding safety and stability to cross-border transactions
This development represents another important milestone in the development of the Nasdaq Europe market and demonstrates its commitment to be the low cost provider in buying and selling shares in Europe.
Supported by sophisticated and robust risk management systems, EuroCCP is the first central counterparty (CCP) to offer cross-border services on a pan-European basis, including services for U.S. securities traded in Europe. (A central counterparty helps manage the costs and risks of trading by standing between buyers and sellers to ensure that money and securities change hands smoothly and efficiently.) EuroCCP received recognition from the Financial Services Authority (FSA) as a U.K. Recognised Clearing House on September 14, 2001.
Michael Sanderson, Chief Executive Officer of Nasdaq Europe, commented: "This clearing and settlement solution sweeps away the costs and bureaucracy which have always deterred European investors from investing across borders. EuroCCP will make many of the world's biggest and most exciting shares far more accessible to European investors and will play a hugely important role in helping Nasdaq Europe develop as the pre-eminent pan-European equity market."
Jeffrey H. Smith, Chief Executive Officer of EuroCCP, said: "We're pleased that we're now in a position to help Nasdaq Europe grow its pan-European market. We've delivered on our commitment of developing a new central counterparty in an unusually aggressive nine-month timeframe, demonstrating our ability to bring innovative and complex solutions to market quickly."
"Not only will EuroCCP lower the cost of clearing and settlement - addressing a major concern of European investors - but through netting, Nasdaq Europe members may be able to reduce their capital requirements," added Sanderson. "For example in the U.S., netting reduced the number of obligations requiring settlement on a peak day last year by 97% from $722 billion to $22 billion."
"We're delighted that Nasdaq Europe is the first market to link to our new central counterparty and we're fully confident that EuroCCP will prove increasingly attractive to European firms, greatly facilitating the growth in cross-border trading," added Smith.
Nasdaq Europe recently completed a series of road shows throughout Europe to update the market on its progress, define next steps and further outline its future strategy. Over the next few months, EuroCCP and Nasdaq Europe will be working closely to actively promote the new clearing and settlement solution and bring participants onto EuroCCP.
Background
Nasdaq Europe stated, when it launched the market in March 2001, that its vision included a seamless clearing and settlement solution to reduce the operational cost, inefficiencies and risk associated with cross-border transactions. Today's announcement represents an important step forward in the development of Nasdaq Europe, which has already seen the introduction of the European Trading System and a trading link with the Berlin Stock Exchange.
As the first central counterparty to offer cross-border services on a pan-European basis, including services for U.S. securities traded in Europe, EuroCCP offers a number of important innovative features. These include:
Counterparty Risk Elimination: EuroCCP eliminates counterparty risk as soon as the trade information is sent by Nasdaq Europe and accepted by EuroCCP. EuroCCP takes on the responsibility for delivery and payment obligations, becoming the buyer to every seller and the seller to every buyer.
Netting: EuroCCP provides an optional netting settlement service, allowing firms to decrease the number of trade obligations requiring settlement, helping to reduce settlement costs and making it possible to reduce capital. EuroCCP will net transactions in each security at the end of each processing day. Buys in a given security will be offset against sells in that security, for the same trade date and settlement date.
Settlement In A Securities Home Depository:EuroCCP offers settlement at each security's home depository where settlement liquidity is greatest. EuroCCP has established connectivity to a number of key depositories in Europe and the U.S.
Operational details
Participation in EuroCCP will be voluntary for members using Nasdaq Europe's trade reporting services. It will, however, become mandatory when Nasdaq Europe launches its hybrid-market model, adding a central limit order book to the current platform.
EuroCCP will support trading in multiple currencies. In the initial stages, settlement will be in a single currency per security designated by Nasdaq Europe as the currency of quotation.
