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SmartPool Seeks New Investors, Selects Clearers
SmartPool, the dark book being built by NYSE Euronext, HSBC and BNP Paribas, announced Tuesday that it has selected two clearing agents, one of which will enable users to free up capital by netting trades--an attractive carrot for the multilateral trading facility (MTF) to dangle.
SmartPool’s launch, originally set for the second quarter, has been postponed until “after the summer,” said Roland Bellegarde, head of European execution at NYSE Euronext. The delay stems from ongoing discussions with a “handful” of potential investors, said Bellegarde. “In terms of incorporating the company as a joint venture, we need a full set of investors,” he said, adding that the agreements should be reached within a few weeks, though he declined to name the firms.
Based in London, SmartPool has already initiated the legal and regulatory processes to become a regulated entity under the Financial Services Authority, according to Bellegarde. The MTF has also made significant progress on its homegrown technology platform, he noted, which will offer a continuous order book and point-in-time cross. And the venture now has a pair of clearers--LCH.Clearnet and Depository Trust & Clearing Corp. (DTCC) subsidiary EuroCCP.
LCH.Clearnet, created in 2003 from the merger of the London Clearing House and Paris-based Clearnet, will provide clearing services for stocks listed in the four Euronext markets--Amsterdam, Brussels, Lisbon and Paris--and settlement will be done through the local central securities depositories. EuroCCP will clear stocks in Austria, Denmark, Finland, Germany, Ireland, Italy, Norway, Sweden, Switzerland and the U.K.
“We believe as we extend EuroCCP’s reach to a broader population of European trading platforms such as SmartPool, all financial firms--and end investors--will benefit from the economies of scale that come from increased volumes that clear and settle through our platform,” said EuroCCP chief executive Diana Chan in a statement. New York-based DTCC last year revived the long-dormant London-based central counterparty, which will provide clearing services for the Turquoise platform slated to roll out in September.
Both clearers have signed on to Europe’s voluntary code of conduct, which seeks to resolve interoperability issues among clearing and settlement agents. One major benefit of creating links between agents is the ability to net trades and reduce capital requirements for members. Such netting already occurs in the U.S., where the DTCC acts as the central settlement house, and is one of the goals of the European Central Bank’s Target2-Securities initiative, which is not expected to begin operations until at least 2012.
So far, no voluntary links between clearing providers have been created, though there are numerous discussions under way, as well as the on-and-off agreement between LCH.Clearnet and SIS x-clear to permit the SWX Europe and SWX Swiss Exchange affiliate to clear London Stock Exchange-listed securities.
SmartPool trades could be netted, for example, when a block of securities is bought on the venue and sold on one of Euronext’s four markets. Since LCH.Clearnet handles both trades, they can be netted at the clearing level and the capital requirements of LCH.Clearnet would apply to the smaller net amount. “Customers can use their capital to do other trades,” Bellegarde said. “It’s one of our competitive tools to attract order flow.”
“We hope that our clients will enjoy substantial economies as we will set up offsetting at risk and settlement levels between SmartPool and Euronext’s markets,” said Christophe Hémon, chief executive of LCH.Clearnet, in a statement.
Bellegarde noted that members trading on Turquoise, which will mix displayed and dark liquidity, could receive similar capital benefits since they will both clear through EuroCCP. “It’s up to customers to decide where they want to clear trades,” Bellegarde said.
Rumors have been swirling about a potential merger of DTCC and LCH.Clearnet, which could extend netting to more securities listed on a greater number of trading platforms and, according to some observers, create an efficient platform for pan-European post-trade services.
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