In 2023, Euronext will begin a new phase in its “Growth for Impact 2024” business strategy. Euronext Clearing will deliver one clearing house (CCP) for all Euronext’s cash equity, financial and commodity derivatives across Europe. In this article, Anthony Attia, Global Head of Primary Markets and Post Trade at Euronext, discusses how this new pan-European CCP will play a key role in Euronext’s work to serve as the backbone of the Capital Markets Union in Europe and how Euronext’s clients will benefit as a result.
Removing borders while keeping strong local ties
When Euronext embarked on its ambitious post-trade strategy, the aim was clear: to offer its clients the benefits of scale and harmonisation across markets, while still maintaining a robust local footprint in each Euronext market. "When you look at our exchange businesses, they all run on the same trading technology and have access to the same liquidity pool. We’ve created a true capital market union, while keeping strong ties in local communities," Anthony Attia explains. "Yet when you look at the post-trade side of the value chain in Europe, it’s extremely fragmented. We have several clearing houses supporting our markets, and over 30 national CSDs [Central Securities Depositories]. As a part of our 2024 strategy, we want to align this post-trade chain, as we’ve done on the exchange side."
However, Anthony Attia is quick to point out that this is not a matter of centralising post-trade services in one location, with the example of the CSD approach.
It’s about bringing all post-trade services on the same platform, so we can service our clients in a unique way. And we make sure that whether they’re in Denmark, Norway, Italy or Portugal, they’re dealing with one Euronext Securities.
Harmonising clearing the next logical step
According to Anthony Attia, clearing is the logical next step in integrating the equity value chain and harmonising post-trade services across Euronext’s markets. "We’ve long realised that the clearing landscape is just as fragmented across our markets. And this creates a barrier to our clients, preventing them from experiencing the full benefits of our single liquidity pool. After our acquisition of the Borsa Italiana Group, which included the multi-asset-class clearing house CC&G, it made sense to scale CC&G into Euronext Clearing and create a truly European clearing house."
Euronext’s significant European presence means it has the infrastructure necessary to create a robust pan-European clearing house. "For a clearing house to be efficient and bring security to the market, it needs to be able to manage several asset classes and markets. The larger and more diverse the clearing house, the more robust it is. And thanks to our different markets, we’re able to leverage the clearing house we have today in Italy and transform it into a truly European clearing house. It’s an investment in technology, people and a risk framework, and we have the support of our clients to make it a success."
It’s not about building silos, Anthony Attia says. "It’s about having the critical mass to provide an entry door and support the financial community the best way we can."
Offering state-of-the-art risk management
One of a clearing house’s most important functions is counterparty risk management. Euronext Clearing will introduce a new state-of-the-art Value-at-Risk (VAR) margin methodology for fixed income, equity, equity derivatives and commodity derivatives. The dynamic VAR-based model constantly re-evaluates several risk factor scenarios at portfolio level. Since the risk model reassesses risk continuously throughout the day, the system can make calls that match clients’ exposure at that time. So, the collateral clients put in will more closely match the actual needs. This is not only in line with the latest market best practice, but it can also potentially be cheaper for Euronext clients. "Our VAR model is one example of how Euronext Clearing will provide the financial ecosystem with increasingly efficient and resilient solutions for risk capture and allocation within the system," Anthony Attia explains.
There will also be one equity and derivatives default fund across all markets, so clients can benefit from cross-margining. In this way, Euronext can amplify the benefits of cross-margining with cross-border harmonisation.
Because we cover so many national marketplaces, our clients can balance all their trading activities in each asset class across six markets. Being able to balance across six markets for cash equity and six markets for derivatives is a very powerful tool.
Shortening time-to-market
With harmonised clearing across all of Euronext’s markets, clients will be able to use Euronext for the entire trade lifecycle, trading, clearing and settling within the Euronext value chain. They’ll benefit from fully integrated and seamless processing from dynamic data on Euronext’s trading platform through to final settlement in the CSD the client designates. Covering the entire trading value chain also means Euronext can be more agile when it comes to innovation, thus meeting clients’ needs more quickly and efficiently. "With our own clearing house, we can prioritise new product requests from our clients, such as new derivatives contracts, and deliver them more quickly. This will help us be more responsive to our markets’ needs," Anthony Attia says.
Using technology to enhance service offerings
In addition to harmonisation benefits, Euronext Clearing will also offer clients several technological advances, including improved clearing technology, a new user interface and the ability to access on-demand tailored reports. "At Euronext, we focus on using technology to make life easier for our clients," Anthony Attia says. "With Euronext Clearing, clients will have access to all the information they need regarding collateral, risk and clearing, on one platform. And they’ll be able to request the level of detail and data they require to meet their business needs."
Catering for local market requirements
This latest harmonisation move will follow the same pattern Euronext has established – its so-called ‘federal’ model – where the company has global, or pan-European operations, but with a decidedly local approach. "Our clients will benefit from more localised teams for sales, as well as services that cater to local market needs," Anthony Attia says. Expanding Euronext’s federal model is about creating positive disruption, “moving the lines” as Anthony Attia describes it. And it’s always with an eye fixed firmly on the needs of each market where Euronext operates.
We’re not managing legacy businesses. We’re transforming the European markets, but we’re not centralising. And our clients tell us this is the right thing to do.
What Euronext clients can expect in 2023-24
In terms of concrete steps, Euronext has already made considerable progress in transforming Euronext Clearing into a pan-European clearing house. "We’ve worked closely with our clients as we’ve developed the migration strategy, cash markets specifications and the timeline for the entire project," Anthony Attia says. Teams are now in place in Italy, France and the UK. Clients have been invited to participate in user groups as well, where they can ask questions and get the latest updates on the migration process.
Because Euronext has worked so closely with its clients to identify how it can improve its current services and achieve economies of scale, Anthony Attia is confident the company will deliver the changes clients are looking for. "The value proposition is very simple. We will have one clearing house supporting the cash equity and derivative business in all seven markets[*], and we will provide efficiencies across the asset classes. We’ll provide transparency on the data – particularly around settlement efficiencies – and leverage Euronext Securities to access the T2S settlement platform. We’re taking Euronext’s European construction one step further, and we’re extremely proud of that," he concludes. An enormous amount of work has already been achieved and the project remains on track to deliver as planned. The first major milestone for Euronext clients will be the migration of cash equity transactions to Euronext Clearing, which is expected to be completed in Q4 2023. Financial and commodity derivatives will be migrated later, by Q3 2024. Clients are being asked to sign up for Euronext Clearing membership, so they can make sure their systems are ready for the go-live date in 2023.
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[*] excluding Oslo Børs cash markets