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A new Central Counterparty (CCP) service for trading in the 50 most liquid Depositary Receipts (DRs) on the London Stock Exchange’s International Order Book (IOB) has been launched this week, covering securities from Russia, Kazakhstan, South Korea and India.
The IOB offers specialist investors easy and cost efficient access to international markets via DRs from 46 countries.
The introduction of a CCP will support continued growth in trading on the IOB by mitigating counterparty risk, increasing efficiency for participants and ensuring post-trade as well as pre-trade anonymity.
X-TRM, the London Stock Exchange Group’s post-trade router, will be used in the UK market for the first time as part of the service, increasing operational efficiency by ensuring that trades are routed from the IOB to the CCP service provider LCH.Clearnet without manual intervention. LCH.Clearnet will also offer firms the option of netting transactions in the same securities on the same day, in order to reduce transaction management costs and the firm’s financial exposure at settlement level.
Martin Graham, Director of Equity Markets at London Stock Exchange Group, said:
“The IOB has been one of our major success stories of recent years, and as the world’s only truly liquid on-exchange order book for DRs, offers great advantages for our many international issuers. The introduction of a clearing service is a very important stage in the evolution of the IOB, and comes at a time when the market is ever more focused on eliminating counterparty risk and enhancing operational efficiencies. The service is already attracting new participants to the IOB, and will drive liquidity for the benefit of investors and issuers alike.”
"The launch of clearing for the IOB will also bring wider benefits. It will increase the attractiveness of the EDX London IOB derivatives service, and through the use of the X-TRM post-trade router, is a first step in using the Group's post-trade assets to help shape the creation of a wider European trading network linked by shared technology platforms and processes."
Trading on the IOB has grown rapidly since its inception in 2001, and the value traded on the service has more than quadrupled in the last five years, reaching $246.2 billion in 2008.
The new service is expected to support continued growth in IOB trading and attract new participants from both London and overseas: already five member firms that have not previously traded on the IOB now plan to use the service as a result of the new CCP provision.
Market participants in the EDX London IOB service, which offers trading in single stock and index derivatives based on the FTSE Russia IOB index as well as Kazakh and Indian underlyings traded on the IOB, have also welcomed the introduction of the CCP service. The improved counterparty risk management and operational efficiency that the new CCP service will bring to the underlying equity market will give greater certainty to EDX London members when executing hedging transactions against their derivatives positions, and it is expected that these benefits will also attract new members to EDX London.
