Key insights from PostTrade 360掳 Nordic 2024: Innovation, regulation, and competition
17 September 2024
From distributed ledger technology to shorter settlement cycles, Daniel Tison provides an overview of the core findings from this year's conference
Image: stock.adobe.com/borisb17
Overlooking the Riddarfj盲rden bay and clean neoclassicist architecture, Stockholm Waterfront Congress Centre welcomed industry experts from global financial firms to discuss current trends and future predictions within the financial market infrastructure at PostTrade 360掳 Nordic 2024.
The desire for innovation, amid regulatory frameworks, was prevalent across all sectors, from securities services to collateral management, with speakers aiming to increase Europe鈥檚 competitiveness as a global market.
The future of securities services
In a panel discussion called 鈥楾he future of securities services鈥�, representatives from the International 麻豆传媒 Services Association (ISSA) reviewed the evolving landscape of the sector.
Discussion began with the ISSA report from 2020, which outlined key themes expected to impact the securities services industry over the coming 5 to 10 years.
The white paper mentioned the shift in investor behaviour towards passive and ESG-driven investments, as well as new technology-driven competition.
Philip Brown, CEO of Clearstream Banking and executive board member at ISSA, highlighted that the world has changed dramatically since 2020, including the impact of the coronavirus pandemic and the war in Ukraine.
William Hodash, working group coordinator at ISSA, noted that the association is currently updating its paper to reflect these changes and a new document should be published in the coming weeks.
Reflecting on the past years, Colin Parry, ISSA CEO, said: 鈥淭he biggest move we missed was the move to accelerated settlement. I feel slightly embarrassed about that.鈥�
He mentioned the US and Argentina among countries that successfully adopted T+1 in May 2024.
On that note, Brown argued: 鈥淲e have only recently, in many markets, moved to T+2, and that had taken a long time, so the idea that we would then move again so soon afterwards was probably not on the cards.鈥�
The majority of Europe moved to T+2 in late 2014, following the EU adoption of the shorter settlement on 6 October that year.
Brown added: 鈥淭+1 came about in part because of the pressure on the US Congress and Senate due to the meme stock issues, where the settlement period was partly blamed for the market disruption. I don鈥檛 think anyone could have foreseen that financial market infrastructure would be seen as the principal solution to this issue.鈥�
Another change that the panellists observed over the past four years was the increasing interest in ESG.
The panellists also addressed geopolitical factors, such as sanctions and trade tensions.
鈥淥ur industry can be used as a tool for geopolitical leverage,鈥� said Brown. 鈥淲e all need to recognise that geopolitical movements will have a profound impact on our industry.鈥�
Regarding that topic, a member of the audience asked if geopolitics can result in clients losing trust in securities services.
The panellists agreed that this is not the case if there is clear communication from the industry.
鈥淚 think that we as an industry have got to step outside of that problem and just be very candid, explaining to our clients that we are obliged to act within the sanction if they apply to our business,鈥� said Brown. 鈥淥ur obligation is to execute on things that governments decide.鈥�
The second half of the debate was about future predictions, especially talking about new technologies.
According to Parry, distributed ledger technology (DLT) is not yet a solution for cash equities, but there are 鈥渟ome very good use cases鈥�.
He said: 鈥淭aking a use case where there is no automation and making that into a DLT platform which is open to anybody who wants to use it, I think is a good use case, as is the collateral management and the reducing the amount of physical transfers you鈥檙e making because you can exchange tokens for collateralisation.鈥�
鈥淥ne thing we start to see now is the marriage of digital and retail investing with tokenisation and ETFs,鈥� said Brown. 鈥淒igital, married with retail platforms, will change the nature of our industry because it will enable an issuer to connect directly to an investor through an app-based structure.鈥�
The panellists agreed that although Asian countries are seen as 鈥渢he winners鈥� now, the firms that are going to win are those who offer the best customer experience because that is 鈥渁bsolutely critical鈥�.
The discussion closed emphasising the importance of attracting young people into securities services.
Brown commented: 鈥淭he big challenge that you will face is: how can we attract talent to a business which looks a little bit sleepy from the outside, moving ones and zeros, left and right, as opposed to the seemingly more exciting world of trading.
鈥淭he industry needs to ask itself if we are doing enough to pass the knowledge down to the next generation.鈥�
New possibilities in collateral management
Collateral management is not a solution to all problems, but it is a great mitigation strategy for risk management, according to Olivier Grimonpont, head of product management, market liquidity, at Euroclear.
He was one of the speakers at the 鈥楴ew possibilities in collateral management鈥� panel discussion at the conference.
The discussion started by examining the value of different elements of collateral management.
Ingrid Garin, head of markets at BNY, said: 鈥淚f you don鈥檛 link your collateral management to all your funding tools, and you work in isolation of the rest of the ecosystem, the outcome might be the liability-driven investment (LDI) crisis.鈥�
Gael Delaunay, head of collateral management at Clearstream, highlighted the importance of data analytics.
He said: 鈥淥rganisations have relatively complex problems to solve. This stems from the fact that inventories span across locations to meet global assets and liabilities.
鈥淭raditionally, data sets are very fragmented due to legacy systems and firms鈥� siloed structures. Reliable and real-time data are required to make informed decisions. Players like ourselves can offer solutions to consolidate and provide data analytics to support the decision process.鈥�
Garin added that alongside effective data analytics, there is also a value in the flexibility of having access to different solutions.
She said: 鈥淓xploring optionality, to actually face the unknown, is important, and having this in as part of your analysis is a clear requirement to really hedge your risk.
The audience had the opportunity to participate by voting through their phones, which then shaped further discussion.
Collateral optimisation was the most important topic for the audience, followed by prediction ability.
Grimonpont commented: 鈥淐learly, there is a major focus, these days, in optimisation, and it's probably linked to that there is more and more demand for collateral, and there are finite numbers of collateral you can use.鈥�
He continued: 鈥淲e all know that there are pieces of collateral that today are blocking the market, and you can use them, so operational efficiency is when you can mobilise those assets that are unused.鈥�
In that regard, Garin added: 鈥淐ollateral optimization always puts a smile on my face, because it doesn't mean the same thing for all the clients, as each client comes with the foundation of their house.鈥�
鈥淪o yes, we are trying to standardise, we are operating efficiencies, and we know that triparty is close to our heart, but not every client has the same legacy and has the same view of the collateral optimisation. It's more about doing an audit of what you got, what you want, where you want to go, and then building a collateral optimisation.鈥�
Moving forward from optimisation, the panel also addressed the topic of innovation and adopting new technologies.
According to Delaunay, having computing capability is 鈥渢he driver for the future鈥� which should not be omitted.
He said: 鈥淎I will not solve everything as it comes with its own limitations, but it can be handy if combined with traditional optimisation models. The possibilities are almost infinite but need to support real-world use cases.鈥�
Regarding that, two panellists agreed that AI can simplify complex problems and find solutions by linking different use cases to each other.
Grimonpont said: 鈥漈he technology today enables us to link all those pieces of work together. Beauty comes from the fact that all those use cases link to each other and that really makes a very powerful tool.鈥�
However, Garin argued that the market needs to find the right cases for new technologies, and take into account funding and regulatory aspects.
鈥淭he market needs to, first of all, find the right user cases to use the technology to pay for the solution. You also have a big regulatory framework around it. You work in an ecosystem. You need the regulatory aspect behind it, and really have the use cases.
鈥淵ou don't work in a vacuum, in the collateral, I would say you work more transversely in a micro level with different user cases, which could touch many pivots. But I see the regulatory environment as a big influencer, and it needs to stand on its own to feed this topic. You need to be able to make money on the back of it, to finance the barrier to entry.鈥�
In terms of DLT, the audience agreed that it would take 5 to 10 years to fully adopt it by the industry.
For Grimonpont, DLT has the most efficient use cases outside of collateral management. He said: 鈥淓ven though collateral management is often used as the best case for DLT, I'm not 100 per cent sure that's the reality. I think there are a lot of different areas where DLT might actually be far more efficient than collateral management, and documentation is definitely an area where the DLT can be of great value.鈥�
Closing up with final thoughts, Garin said that it is all about evolution, not revolution.
"If you go for revolution, it鈥檚 really hard," she said. "You scrap what you are doing today, and you are really starting on a blank page. You might overanalyse it so much that you will end up having a monster to implement.
Delaunay added: 鈥淲e focus on the dialogue. We start with understanding your foundational needs and priorities. This allows us to advise on best practices, but it also helps us design our roadmap for future developments to meet your needs and support your growth.鈥�
Equity clearing market is open and competitive
Competition and interoperability were the main themes shaping the panel discussion called 鈥楬ear it from the players: the equities clearing market panel鈥�, with representatives from three central counterparties (CCPs).
Tim Beckwith, head of commercial and business development at Cboe Clear Europe, said: 鈥淲e've seen competitive behaviour between CCPs really intensify, which is great for the industry, this competition. The equity clearing market is open and competitive, and we need to make sure it stays that way.鈥�
Another panellist agreed that competition is a good thing, which has led to the reevaluation of interoperability.
According to Beckwith, about 75 per cent of European cash equity trading is interoperable, which is a 鈥渇antastic achievement鈥�, while about 20 per cent is under 鈥減referred clearing鈥�.
鈥淲e think there needs to be growth,鈥� he said. 鈥淲e prefer to see those preferred markets become interoperable, but you also need to plug the gap as well.鈥�
Regarding interoperability, the panel referenced Spain, which, according to one panellist, is currently not an interoperable trading venue, but that may change with the implementation of the Alternative Investment Fund Managers Directive (AIFMD) Level 2 regulation.
On the other hand, Ivan Gilmore, head of cash equities at the London Stock Exchange Group (LSEG) Post Trade, said that the market competition might have gone 鈥渢oo far鈥�, especially in terms of customer expectations.
He said: 鈥淎s volumes went up, customers have expected us to lower fees. However, as volumes have come down over the last couple of years, we鈥檝e not been able to increase those fees.鈥�
Speaking of volumes, Beckwith added: 鈥淵ou either get more volume via winning business off each other, which is the competition part, or through new venues, whether it is preferred clearing or someone that鈥檚 not done anything yet.鈥�
The panel emphasised the need for continued innovation and collaboration among CCPs to maintain stability and efficiency. As the clearing market is opening up, each panellist spotted different benefits.
Gilmore said: 鈥淢ore and more of the interoperable venues are starting to trade crypto exchange traded products (ETPs). It鈥檚 very small at the moment, but it could grow a lot over the next few years, starting with Bitcoin and Ethereum.鈥�
Beckwith added: 鈥淲e also see new venues that are not in clearing. That seems to be the latest trend at the moment, and maybe that鈥檚 where the CCPs will get a bit more revenue from.鈥�
CCPs seek balance between regulation and efficiency
鈥淢arkets are global, problems are local. Central clearing will, in general, continue to increase in its relevance, with a particular link between underlying currency and the respective jurisdiction,鈥� said Matthias Graulich, executive board member at Eurex Clearing.
The 鈥楥CP market game at strategic level鈥� panel discussion focused on the regulatory challenges facing central clearing in Europe, especially the European Market Infrastructure Regulation (EMIR).
Graulich stated that EMIR aims to make the European market infrastructures globally more competitive and provide more autonomy to European regulators in case of a crisis.
鈥淵ou wouldn鈥檛 want a Euro-denominated systematically relevant product to rely on the support from a third country central bank and hope for their goodwill to take swift action in your best interest,鈥� he said. 鈥淎nd this is where EMIR kicks in and tries to set incentives or push people to move some of the exposure from third country infrastructures into the EU, to have tighter control and have the ability to take action in these crisis situations.鈥�
In response, Patrik Lohr, CEO at Nasdaq Clearing, commented: 鈥淚n the end, it鈥檚 all going to be about the implementation because that鈥檚 where we see what the effects really are. But there are good intentions, and I think [EMIR] can improve EU competition.鈥�
Jos茅 Manuel Ortiz-Repiso, head of clearing and repo operations at SIX, agreed that effective implementation of the new regulation will be 鈥渃rucial鈥�.
鈥淲e have to find the right balance between pragmatism and risk,鈥� he added. 鈥淲e have to be pragmatic because we have to consider the profitability of our clients, but also our profitability, because we will need to become a reliable source of trust for them, managing the risks and offering them all the possible efficiencies in terms of products, collateral, and treasury management.鈥�
Vikesh Patel, president of Cboe Clear Europe, hopes that the implementation of EMIR will facilitate the approval process.
鈥淪triking the right balance between regulatory oversight and fostering product innovation is challenging, and I believe we haven鈥檛 quite achieved it yet,鈥� he said.
鈥淚f I bring a new product to market, it should take the appropriate amount of time to do due diligence of the product for regulators to be comfortable, but if I already clear the product, and I鈥檓 adding another currency or something else, that still takes an awful lot of time to get approval. And there was a lot of ambition at the start of the year that we would be able to address that and support innovation, and we still haven鈥檛.鈥�
Isabelle Girolami, CEO of LCH, highlighted the work of the European 麻豆传媒 and Markets Authority (ESMA) as a European supervisor.
鈥淭he more powers ESMA has, the better,鈥� she said. 鈥淎nd the more experience they have in regulating European CCPs, the better they are in regulating non-European CCPs.鈥�
On that note, Patel came up with a driving analogy where CCPs hold the steering wheel and ESMA has access to the brakes and accelerator: 鈥淲hen I was learning to drive, I was holding the wheel, but the other person who was teaching me to drive probably had more power than I did at that point when they needed to.鈥�
During the discussion, Ortiz-Repiso also stressed the importance of collaboration across the sector to prepare for the adoption of T+1 in Europe.
鈥淲e will make a tremendous mistake if we cannot act as an industry because the politicians and regulators need our proactiveness,鈥� he said. 鈥淲e will have to be a little bit more innovative and provide the efficient tools to do so, and not only giving it to the hands of regulators and politicians, to ensure great success, increasing the competitiveness of Europe in general.鈥�
Moving on from regulatory challenges, the panellists discussed technological innovations.
Graulich mentioned the opportunity for existing cross-margin capabilities with a focus on Euro denominated product across futures and swaps, as well as the planned expansion to include repos into that mix. He referred to 鈥渇uturisation鈥� as a 鈥漦ey priority鈥� for Eurex.
He said: 鈥淐redit futures see more and more adoption in the market, and people are seeing this product as an easy way to take an exposure on credit, to manage credit-related risks in a set of products, euro-denominated, dollar-denominated.鈥�
Girolami emphasised the need for optimisation, which is prevalent across the industry.
鈥淲e all want to provide solutions to help optimise,鈥� she said. 鈥淚t also relates to the broader theme and importance of continuing to provide margin optimisation solutions.鈥�
In their conclusion, the panellists agreed that the clearing business has a 鈥渧ery strong future鈥� in Europe.
The desire for innovation, amid regulatory frameworks, was prevalent across all sectors, from securities services to collateral management, with speakers aiming to increase Europe鈥檚 competitiveness as a global market.
The future of securities services
In a panel discussion called 鈥楾he future of securities services鈥�, representatives from the International 麻豆传媒 Services Association (ISSA) reviewed the evolving landscape of the sector.
Discussion began with the ISSA report from 2020, which outlined key themes expected to impact the securities services industry over the coming 5 to 10 years.
The white paper mentioned the shift in investor behaviour towards passive and ESG-driven investments, as well as new technology-driven competition.
Philip Brown, CEO of Clearstream Banking and executive board member at ISSA, highlighted that the world has changed dramatically since 2020, including the impact of the coronavirus pandemic and the war in Ukraine.
William Hodash, working group coordinator at ISSA, noted that the association is currently updating its paper to reflect these changes and a new document should be published in the coming weeks.
Reflecting on the past years, Colin Parry, ISSA CEO, said: 鈥淭he biggest move we missed was the move to accelerated settlement. I feel slightly embarrassed about that.鈥�
He mentioned the US and Argentina among countries that successfully adopted T+1 in May 2024.
On that note, Brown argued: 鈥淲e have only recently, in many markets, moved to T+2, and that had taken a long time, so the idea that we would then move again so soon afterwards was probably not on the cards.鈥�
The majority of Europe moved to T+2 in late 2014, following the EU adoption of the shorter settlement on 6 October that year.
Brown added: 鈥淭+1 came about in part because of the pressure on the US Congress and Senate due to the meme stock issues, where the settlement period was partly blamed for the market disruption. I don鈥檛 think anyone could have foreseen that financial market infrastructure would be seen as the principal solution to this issue.鈥�
Another change that the panellists observed over the past four years was the increasing interest in ESG.
The panellists also addressed geopolitical factors, such as sanctions and trade tensions.
鈥淥ur industry can be used as a tool for geopolitical leverage,鈥� said Brown. 鈥淲e all need to recognise that geopolitical movements will have a profound impact on our industry.鈥�
Regarding that topic, a member of the audience asked if geopolitics can result in clients losing trust in securities services.
The panellists agreed that this is not the case if there is clear communication from the industry.
鈥淚 think that we as an industry have got to step outside of that problem and just be very candid, explaining to our clients that we are obliged to act within the sanction if they apply to our business,鈥� said Brown. 鈥淥ur obligation is to execute on things that governments decide.鈥�
The second half of the debate was about future predictions, especially talking about new technologies.
According to Parry, distributed ledger technology (DLT) is not yet a solution for cash equities, but there are 鈥渟ome very good use cases鈥�.
He said: 鈥淭aking a use case where there is no automation and making that into a DLT platform which is open to anybody who wants to use it, I think is a good use case, as is the collateral management and the reducing the amount of physical transfers you鈥檙e making because you can exchange tokens for collateralisation.鈥�
鈥淥ne thing we start to see now is the marriage of digital and retail investing with tokenisation and ETFs,鈥� said Brown. 鈥淒igital, married with retail platforms, will change the nature of our industry because it will enable an issuer to connect directly to an investor through an app-based structure.鈥�
The panellists agreed that although Asian countries are seen as 鈥渢he winners鈥� now, the firms that are going to win are those who offer the best customer experience because that is 鈥渁bsolutely critical鈥�.
The discussion closed emphasising the importance of attracting young people into securities services.
Brown commented: 鈥淭he big challenge that you will face is: how can we attract talent to a business which looks a little bit sleepy from the outside, moving ones and zeros, left and right, as opposed to the seemingly more exciting world of trading.
鈥淭he industry needs to ask itself if we are doing enough to pass the knowledge down to the next generation.鈥�
New possibilities in collateral management
Collateral management is not a solution to all problems, but it is a great mitigation strategy for risk management, according to Olivier Grimonpont, head of product management, market liquidity, at Euroclear.
He was one of the speakers at the 鈥楴ew possibilities in collateral management鈥� panel discussion at the conference.
The discussion started by examining the value of different elements of collateral management.
Ingrid Garin, head of markets at BNY, said: 鈥淚f you don鈥檛 link your collateral management to all your funding tools, and you work in isolation of the rest of the ecosystem, the outcome might be the liability-driven investment (LDI) crisis.鈥�
Gael Delaunay, head of collateral management at Clearstream, highlighted the importance of data analytics.
He said: 鈥淥rganisations have relatively complex problems to solve. This stems from the fact that inventories span across locations to meet global assets and liabilities.
鈥淭raditionally, data sets are very fragmented due to legacy systems and firms鈥� siloed structures. Reliable and real-time data are required to make informed decisions. Players like ourselves can offer solutions to consolidate and provide data analytics to support the decision process.鈥�
Garin added that alongside effective data analytics, there is also a value in the flexibility of having access to different solutions.
She said: 鈥淓xploring optionality, to actually face the unknown, is important, and having this in as part of your analysis is a clear requirement to really hedge your risk.
The audience had the opportunity to participate by voting through their phones, which then shaped further discussion.
Collateral optimisation was the most important topic for the audience, followed by prediction ability.
Grimonpont commented: 鈥淐learly, there is a major focus, these days, in optimisation, and it's probably linked to that there is more and more demand for collateral, and there are finite numbers of collateral you can use.鈥�
He continued: 鈥淲e all know that there are pieces of collateral that today are blocking the market, and you can use them, so operational efficiency is when you can mobilise those assets that are unused.鈥�
In that regard, Garin added: 鈥淐ollateral optimization always puts a smile on my face, because it doesn't mean the same thing for all the clients, as each client comes with the foundation of their house.鈥�
鈥淪o yes, we are trying to standardise, we are operating efficiencies, and we know that triparty is close to our heart, but not every client has the same legacy and has the same view of the collateral optimisation. It's more about doing an audit of what you got, what you want, where you want to go, and then building a collateral optimisation.鈥�
Moving forward from optimisation, the panel also addressed the topic of innovation and adopting new technologies.
According to Delaunay, having computing capability is 鈥渢he driver for the future鈥� which should not be omitted.
He said: 鈥淎I will not solve everything as it comes with its own limitations, but it can be handy if combined with traditional optimisation models. The possibilities are almost infinite but need to support real-world use cases.鈥�
Regarding that, two panellists agreed that AI can simplify complex problems and find solutions by linking different use cases to each other.
Grimonpont said: 鈥漈he technology today enables us to link all those pieces of work together. Beauty comes from the fact that all those use cases link to each other and that really makes a very powerful tool.鈥�
However, Garin argued that the market needs to find the right cases for new technologies, and take into account funding and regulatory aspects.
鈥淭he market needs to, first of all, find the right user cases to use the technology to pay for the solution. You also have a big regulatory framework around it. You work in an ecosystem. You need the regulatory aspect behind it, and really have the use cases.
鈥淵ou don't work in a vacuum, in the collateral, I would say you work more transversely in a micro level with different user cases, which could touch many pivots. But I see the regulatory environment as a big influencer, and it needs to stand on its own to feed this topic. You need to be able to make money on the back of it, to finance the barrier to entry.鈥�
In terms of DLT, the audience agreed that it would take 5 to 10 years to fully adopt it by the industry.
For Grimonpont, DLT has the most efficient use cases outside of collateral management. He said: 鈥淓ven though collateral management is often used as the best case for DLT, I'm not 100 per cent sure that's the reality. I think there are a lot of different areas where DLT might actually be far more efficient than collateral management, and documentation is definitely an area where the DLT can be of great value.鈥�
Closing up with final thoughts, Garin said that it is all about evolution, not revolution.
"If you go for revolution, it鈥檚 really hard," she said. "You scrap what you are doing today, and you are really starting on a blank page. You might overanalyse it so much that you will end up having a monster to implement.
Delaunay added: 鈥淲e focus on the dialogue. We start with understanding your foundational needs and priorities. This allows us to advise on best practices, but it also helps us design our roadmap for future developments to meet your needs and support your growth.鈥�
Equity clearing market is open and competitive
Competition and interoperability were the main themes shaping the panel discussion called 鈥楬ear it from the players: the equities clearing market panel鈥�, with representatives from three central counterparties (CCPs).
Tim Beckwith, head of commercial and business development at Cboe Clear Europe, said: 鈥淲e've seen competitive behaviour between CCPs really intensify, which is great for the industry, this competition. The equity clearing market is open and competitive, and we need to make sure it stays that way.鈥�
Another panellist agreed that competition is a good thing, which has led to the reevaluation of interoperability.
According to Beckwith, about 75 per cent of European cash equity trading is interoperable, which is a 鈥渇antastic achievement鈥�, while about 20 per cent is under 鈥減referred clearing鈥�.
鈥淲e think there needs to be growth,鈥� he said. 鈥淲e prefer to see those preferred markets become interoperable, but you also need to plug the gap as well.鈥�
Regarding interoperability, the panel referenced Spain, which, according to one panellist, is currently not an interoperable trading venue, but that may change with the implementation of the Alternative Investment Fund Managers Directive (AIFMD) Level 2 regulation.
On the other hand, Ivan Gilmore, head of cash equities at the London Stock Exchange Group (LSEG) Post Trade, said that the market competition might have gone 鈥渢oo far鈥�, especially in terms of customer expectations.
He said: 鈥淎s volumes went up, customers have expected us to lower fees. However, as volumes have come down over the last couple of years, we鈥檝e not been able to increase those fees.鈥�
Speaking of volumes, Beckwith added: 鈥淵ou either get more volume via winning business off each other, which is the competition part, or through new venues, whether it is preferred clearing or someone that鈥檚 not done anything yet.鈥�
The panel emphasised the need for continued innovation and collaboration among CCPs to maintain stability and efficiency. As the clearing market is opening up, each panellist spotted different benefits.
Gilmore said: 鈥淢ore and more of the interoperable venues are starting to trade crypto exchange traded products (ETPs). It鈥檚 very small at the moment, but it could grow a lot over the next few years, starting with Bitcoin and Ethereum.鈥�
Beckwith added: 鈥淲e also see new venues that are not in clearing. That seems to be the latest trend at the moment, and maybe that鈥檚 where the CCPs will get a bit more revenue from.鈥�
CCPs seek balance between regulation and efficiency
鈥淢arkets are global, problems are local. Central clearing will, in general, continue to increase in its relevance, with a particular link between underlying currency and the respective jurisdiction,鈥� said Matthias Graulich, executive board member at Eurex Clearing.
The 鈥楥CP market game at strategic level鈥� panel discussion focused on the regulatory challenges facing central clearing in Europe, especially the European Market Infrastructure Regulation (EMIR).
Graulich stated that EMIR aims to make the European market infrastructures globally more competitive and provide more autonomy to European regulators in case of a crisis.
鈥淵ou wouldn鈥檛 want a Euro-denominated systematically relevant product to rely on the support from a third country central bank and hope for their goodwill to take swift action in your best interest,鈥� he said. 鈥淎nd this is where EMIR kicks in and tries to set incentives or push people to move some of the exposure from third country infrastructures into the EU, to have tighter control and have the ability to take action in these crisis situations.鈥�
In response, Patrik Lohr, CEO at Nasdaq Clearing, commented: 鈥淚n the end, it鈥檚 all going to be about the implementation because that鈥檚 where we see what the effects really are. But there are good intentions, and I think [EMIR] can improve EU competition.鈥�
Jos茅 Manuel Ortiz-Repiso, head of clearing and repo operations at SIX, agreed that effective implementation of the new regulation will be 鈥渃rucial鈥�.
鈥淲e have to find the right balance between pragmatism and risk,鈥� he added. 鈥淲e have to be pragmatic because we have to consider the profitability of our clients, but also our profitability, because we will need to become a reliable source of trust for them, managing the risks and offering them all the possible efficiencies in terms of products, collateral, and treasury management.鈥�
Vikesh Patel, president of Cboe Clear Europe, hopes that the implementation of EMIR will facilitate the approval process.
鈥淪triking the right balance between regulatory oversight and fostering product innovation is challenging, and I believe we haven鈥檛 quite achieved it yet,鈥� he said.
鈥淚f I bring a new product to market, it should take the appropriate amount of time to do due diligence of the product for regulators to be comfortable, but if I already clear the product, and I鈥檓 adding another currency or something else, that still takes an awful lot of time to get approval. And there was a lot of ambition at the start of the year that we would be able to address that and support innovation, and we still haven鈥檛.鈥�
Isabelle Girolami, CEO of LCH, highlighted the work of the European 麻豆传媒 and Markets Authority (ESMA) as a European supervisor.
鈥淭he more powers ESMA has, the better,鈥� she said. 鈥淎nd the more experience they have in regulating European CCPs, the better they are in regulating non-European CCPs.鈥�
On that note, Patel came up with a driving analogy where CCPs hold the steering wheel and ESMA has access to the brakes and accelerator: 鈥淲hen I was learning to drive, I was holding the wheel, but the other person who was teaching me to drive probably had more power than I did at that point when they needed to.鈥�
During the discussion, Ortiz-Repiso also stressed the importance of collaboration across the sector to prepare for the adoption of T+1 in Europe.
鈥淲e will make a tremendous mistake if we cannot act as an industry because the politicians and regulators need our proactiveness,鈥� he said. 鈥淲e will have to be a little bit more innovative and provide the efficient tools to do so, and not only giving it to the hands of regulators and politicians, to ensure great success, increasing the competitiveness of Europe in general.鈥�
Moving on from regulatory challenges, the panellists discussed technological innovations.
Graulich mentioned the opportunity for existing cross-margin capabilities with a focus on Euro denominated product across futures and swaps, as well as the planned expansion to include repos into that mix. He referred to 鈥渇uturisation鈥� as a 鈥漦ey priority鈥� for Eurex.
He said: 鈥淐redit futures see more and more adoption in the market, and people are seeing this product as an easy way to take an exposure on credit, to manage credit-related risks in a set of products, euro-denominated, dollar-denominated.鈥�
Girolami emphasised the need for optimisation, which is prevalent across the industry.
鈥淲e all want to provide solutions to help optimise,鈥� she said. 鈥淚t also relates to the broader theme and importance of continuing to provide margin optimisation solutions.鈥�
In their conclusion, the panellists agreed that the clearing business has a 鈥渧ery strong future鈥� in Europe.
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