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The Board of Directors of Oslo Børs VPS Holding decided at its meeting on 25 February 2009 to introduce central counterparty (CCP) clearing for trades in equities, primary capital certificates and ETFs on Oslo Børs, and for trades in equities on Oslo Axess. The service will be provided by Oslo Clearing ASA, which currently offers a CCP service for clearing derivatives trading on Oslo Børs. Oslo Børs VPS plans to launch the new service in the first quarter of 2010.
As a central counterparty in the equities market, Oslo Clearing will take on the role of legal counterparty for both the original purchaser and the original seller from such time as an order is matched on the exchange.
The introduction of a central counterparty reduces the risk exposure between participants (investment firms and banks) in the central securities settlement process, and increases confidence in the local market infrastructure. A central counterparty structure also causes a reduction in transaction costs for broking firms since the number of settlement transactions carried out is reduced by means of transaction netting, in other words only net positions are submitted for settlement.
By offering this service, Oslo Clearing will take over the counterparty risk and the liability that this involves. The company will cover this liability by collecting collateral from its members. This will provide cover for losses that might be caused by default. In addition, a defence mechanism will be established comprising a default fund that will operate as a supplement to Oslo Clearing’s equity. The default fund will be established by joint and several contributions from the members of the clearing house.
“Establishing a central counterparty means that we will offer a competitive alternative that we believe is the best solution for the common interests of market participants. In addition, a central counterparty structure helps to make the securities chain more efficient and transparent, and will strengthen the group’s competitiveness over time”, explains Bente A. Landsnes, President and CEO of Oslo Børs VPS.
The introduction of a central counterparty structure for equities clearing will require approval by the authorities and formal authorisation.
