From Paris to Amsterdam
Euronext has signed a binding “heads of terms” agreement with the Intercontinental Exchange to use ICE Clear Netherlands for its derivatives markets.
The two companies said they expect to complete a formal clearing services agreement by the end of the second quarter and expect to migrate Euronext’s financial and commodity derivatives to the Amsterdam-based clearinghouse in the second half of 2018.
Under the terms of the agreement announced in April, Euronext will make an “upfront” €10 million investment in ICE Clear Netherlands and will receive income from the provision of clearing services. Euronext also said the deal will lead to lower costs for customers, with a 15% reduction in clearing fees and lower treasury management fees.
Euronext executives said the move was a response to the collapse of the proposed merger between Deutsche Börse and the London Stock Exchange Group. LSE had agreed to sell LCH.Clearnet SA, its Paris-based clearinghouse, to Euronext in order to address antitrust concerns, but the deal was contingent on the merger. Euronext currently relies on LCH.Clearnet SA for derivatives clearing, but the arrangement is due to expire in December 2018.
Euronext CEO Stéphane Boujnah said his company “continues to remain a willing buyer” for the Paris-based clearinghouse, but in the absence of an agreement, “Euronext is fully committed to securing the best long-term solution for its post-trade activities, in the interests of clients and shareholders.”
ICE bought a majority stake in the Dutch clearinghouse in December 2014. The clearinghouse currently provides clearing services for equities and equity index derivatives listed on TOM, a multilateral trading facility based in the Netherlands. TOM is in the process of winding down its operations, however.
Metals Market Makeover
The London Metal Exchange and LME Clear have published a discussion paper to solicit feedback on a wide range of issues related to its core markets in non-precious metals, including trading and booking structures, clearing structures and services, delivery and physical market structure, membership and the LME ecosystem as a whole.
LME will engage with market participants through a series of briefings and gather written feedback until June 30. After analyzing the feedback, LME intends to publish an outcomes document that will articulate its strategic direction. This document is expected in the fall.
“Our core strategic vision is to work with our members to make LME trading more accessible and efficient, while fully respecting our physical roots,” said Matthew Chamberlain, LME’s newly appointed CEO. “This paper lays out the principles on which we plan to build our business, and invites feedback from all stakeholders on the routes by which we deliver that strategic vision.”
The 50-page discussion paper puts forward a long list of questions on key issues facing the exchange, including whether to preserve the date structure for its contracts or move towards the futures model of monthly contracts; how to deal with high-frequency traders and whether it should introduce “speed bumps” to mitigate the advantages of execution speed; possible changes to its trading and clearing fees; and many other issues related to its market structure.
The paper also raises several issues related specifically to clearing, including a possible transition from SPAN to VaR margining methodology, the creation of different types of client accounts based on gross rather than net margining, and the introduction of an additional OTC clearing service.
On March 21, Hong Kong Exchanges and Clearing announced that it has launched a client clearing service ahead of the first phase of mandatory clearing in Hong Kong set for July 1. The service provides OTC derivative market participants with the means to fulfill their regulatory obligations along with the credit and capital efficiency benefits of central clearing through the establishment of a clearing relationship with a member of OTC Clearing Hong Kong, the exchange’s clearing service for interest rate swaps and non-deliverable foreign exchange forwards. HKEX has also received approval from the Securities and Futures Commission to accept certain types of high-quality, non-cash collateral from its clearing participants to satisfy their margin requirements to OTC Clearing. These include government securities from the U.S., Hong Kong and China.
Futures and Options Clearing
The Japan Securities Clearing Corporation has implemented several changes to its clearing rules for listed derivatives to enhance its clearing services and to introduce practices adopted by other major global clearinghouses. These include changes to the account structure—both omnibus accounts and individual segregated accounts will now be available for clients. In addition, the clearinghouse has revised its margining rules and its collateral management framework.
The Securities and Exchange Board of India announced it will issue unified licenses to brokers and clearing members to transact in both commodity derivative and equity markets. This follows the merger of the Forward Markets Commission, which regulates commodity markets in India, and SEBI in September 2015. Previously, separate legal entities were required for the different businesses. Additionally, SEBI proposed to permit hedge funds to invest in commodity derivatives and said it will soon permit exchanges to offer commodity derivative options.
OTC Derivatives Reform
On April 28, the Monetary Authority of Singapore issued a consultation paper to further implement OTC regulatory reform in Singapore. The MAS is seeking comments on draft regulations that affect exchanges and recognized market operators for the trading of OTC derivatives. The draft regulations cover licensing and capital requirements and transitional arrangements. A second consultation paper will be issued by the MAS later in May which will cover changes to product definitions under the Securities and Futures Act and extend the capital markets services licensing regime to OTC derivatives.