As we bid farewell to 2024, we are left with many questions about the dawn of 2025, a year that promises to be a game-changer. We already have key milestones within the ever-fluid EMEA regulatory landscape, including DORA and implementing the Mifid II and Mifir review. We will likely witness further regulatory divergence between the UK and the EU. Still, all parties must act swiftly to address the macro-level challenges affecting primary market listings and the lack of investment in the EMEA region. It is imperative that action is taken on all fronts. 

We should finally see, on a grander scale, AI usage moving from an over-used buzzword bingo to a reality. The pursuit of innovation will persist, with new entrants needing to demonstrate credible and distinctive credentials in a highly competitive and demanding environment, where only those that offer something unique will ultimately endure.

As the industry moves towards a consolidated tape and the looming T+1 deadline, established players will likely continue positioning themselves to expand their market share or protect their existing trading, data, and technology businesses. This is set against a backdrop of rising industry costs, which will inevitably face heightened scrutiny.  Liquidity sweet spots like retail, blocks, bilateral and VWAP crossing will again dominate many liquidity discussions. The bilateral debate will likely persist, and we can expect engaging discussions from industry participants and regulators. 

Furthermore, the ‘Trump effect’ looms on the horizon; this could exacerbate market volatility in the year ahead, a reality that will soon become apparent. In 2025, we must challenge existing workflows and the status quo to innovate and compete globally. We all have a role to play in establishing the EMEA ecosystem as a model of excellence for the global trading community next year and beyond.

Steve Walsh, director of product and solutions, Duco 

This has been one of the most consequential years for financial market regulation in a decade. New compliance requirements have reshaped frameworks in Europe and across the globe. The two most important regulations were the Emir refit at the end of April and the US transition to a T+1 settlement cycle. Both regulations aim to enhance transparency and resilience. 

The Emir refit’s primary motivation was to improve data quality and transparency in the European derivative markets with mandatory data reconciliation requirements and obligations to report material issues to national competent authorities (NCAs). While the transition was largely successful, regulators next year will need to address lingering issues around data accuracy and integrity on data reported to trade repositories. 

Meanwhile in America, T+1 has created operational difficulties, highlighting data quality and transformation issues as well as poor processes and a lack of automation throughout. Resolving these issues will be relevant in Europe as well, as T+1 is expected to reach both the EU and the UK by the end of 2027. European firms need to start preparing while learning from their US peers.

Vikesh Patel, global head of clearing, and president, Cboe Clear Europe 

In 2025, we anticipate renewed regulatory efforts to promote more resilient, efficient and integrated pan-European financial infrastructures. Striking the right balance between fostering growth and innovation on one hand and maintaining regulatory oversight and financial stability on the other will be essential for advancing the region’s capital markets and we look forward to Emir 3.0 helping bring this to life. Whilst we anticipate that talk of top-down consolidation for Europe’s post-trade infrastructure is likely to persist, we will continue to advocate for strengthening the existing competitive framework, particularly in cash equities through mandating true clearing interoperability for all major exchanges.

We remain dedicated to fostering a stronger and more resilient European market by continually driving innovation and equipping participants with the tools they need to drive a more efficient use of their capital, ultimately contributing to long-term growth and stability across the region.

Matt Smith, chief executive officer, SteelEye  

Following several years marked by significant fines for record-keeping breaches related to encrypted messaging apps, we expect to see a broadening focus in 2025. E-comms will remain a regulatory focus, but so too will areas such as voice surveillance. 

Voice surveillance currently represents a big gap in many firms’ communications surveillance programmes due to ambiguous regulatory rules. However, it is likely regulators will clarify expectations around voice surveillance in 2025, and financial firms should prepare for this. 

Currently, regulatory rules do not specify how voice data should be monitored which has resulted in many financial institutions simply carrying out manual reviews of a sample of voice calls, leaving a considerable gap for missed risks.  With advancements in transcription and analytics technology, voice surveillance will move from being an overlooked channel to a critical component of risk management frameworks in 2025. 

Simon Gallagher, chief executive officer, Euronext London 

In 2025, the realities of increased competition from the US for capital and liquidity will be a wake-up call for Europe. On both sides of the channel, policy makers will accelerate measures to bridge the gap between the region’s vast, untapped household savings and its equity markets.

As part of this wider effort, Europe will need stronger and simpler market structures. Euronext will play its full role, making material contributions to simplifying Europe’s post-trade complexity, harmonising its fragmented ETF markets and leveraging our new clearing capability to unlock value for clients. In addition, following our recent push for a single, unified European prospectus, we will continue to proactively propose ‘bottom-up’ solutions to simplify European markets.

Under strong political leadership, I am optimistic that the region will be able to catch up with the US in funding innovation and infrastructure and in creating greater wealth for its citizens. 

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Vikesh Patel

With this approval, the pan-European clearing house will introduce a service for European SFT transactions in cash equities and ETFs, which includes central clearing, settlement and post-trade lifecycle management.

The service is available to principal lenders, special participant lenders (UCITS and non-UCITS) and borrowers, with settlements conducted across 19 European Central Securities Depositories (CSDs).

The service also supports key regulatory initiatives including EMIR, CSDR and the Securities Financing Transactions Regulation (SFTR), with the aim to help promote transparency, market integrity and the competitiveness of European capital markets.

“We are delighted to have received regulatory approval to expand into European SFT clearing, marking a significant milestone in our goal to introduce innovative, robust, and comprehensive clearing solutions across multiple asset classes in Europe,” said Vikesh Patel, president of Cboe Clear Europe.

“We greatly appreciate the support of our regulators as we deliver on our commitment to launch innovative services which we believe enhance efficiencies for European market participants and help foster the growth of the region’s capital markets.”

The concept of central clearing of SFTs is not new and has been tried before with varying degrees of success. In Europe, there have been multiple failed attempts to successfully introduce and maintain SFT clearing.

Eurex Clearing announced it was shutting down its Securities Lending CCP service in 2021 following low clearing volumes and a prioritisation of other businesses. 

Other attempts included efforts from EuroCCP – which now operates as Cboe Clear Europe after being acquired by Cboe Global Markets in 2020. However, the group now believes it has the correct recipe for success.

The new service seeks to transform the existing bilateral process between securities lenders and borrowers into a centrally cleared model, with Cboe Clear Europe acting as the counterparty to both sides of each transaction.

The clearing house added that it believes this enables participants to reduce their risk-weighted asset exposures associated with SFTs and supports the growth of this key market.

Elsewhere, the service looks to bring a range of capital and operational advantages, including savings from cross-margining between cash equities and SFTs, greater settlement efficiencies, elimination of agent lender disclosures, and improved practices around fees management and corporate actions.

The Bank of New York Mellon Corporation and JP Morgan will be utilised by the service as tri-party collateral agents, while Pirum will serve as the transmitter of new trade instructions and post-trade lifecycle events on behalf of clients.

“We are excited to build out this new clearing eco- system in collaboration with market participants and are already in advanced discussions with a wide variety of firms, including banks, asset managers, broker-dealers, and agent lenders – representing beneficial owners like pension funds and UCITS – to help ensure a smooth launch in the coming weeks and months,” said Jan Treuren, senior director, product at Cboe Clear Europe.

“Initially, the service will cover key European markets, with plans to expand the offering based on client demand and market developments.”

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The new service will bring OTC cash equities trades into Cboe Clear Europe’s cleared environment, which can then be netted against on-exchange transactions for settlement purposes.

Creating a link between DTCC’s Institutional Trade Processing (ITP) central matching service, CTM, makes up the first part of the joint initiative. Subject to regulatory approvals, this is projected to go live in Q2 of next year.

Cboe Clear Europe will be the first CCP to connect to CTM.

“This joint solution enables us to bring greater efficiencies to our clients, helping to optimise their current post-trade workflows and operational processes as the global financial markets look to accelerate settlement cycles,” said Vikesh Patel, president, Cboe Clear Europe.

As part of the initiative, DTCC and Cboe Clear Europe each intend to develop a proof of concept that links Cboe Clear Europe with the tri-party trade matching workflow of CTM.

Prime brokers will receive a golden copy of transaction details when a match is achieved between a hedge fund and executing broker via DTCC’s CTM service. CTM could then automatically send matched trades to the CCP, providing netting and clearing benefits to Cboe Clear Europe and DTCC’s mutual clients.

The pair claim the new workflow could help reduce settlement and operational risk and will help facilitate a reduction in capital requirements when moving from OTC to CCP settlement, as well as lower trade fails and defaults.

“We are pleased to be working with Cboe Clear Europe on this important initiative to bring greater post-trade efficiencies to the industry as the global markets look to accelerate to a T+1 settlement cycle,” said Val Wotton, managing director and general manager, DTCC Institutional Trade Processing.

“Cboe Clear Europe’s extensive venue coverage combined with CTM’s large client base will deliver increased operational efficiency and netting opportunities across European trading venues.”

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Vikesh Patel

With Bank of America and State Street onboard, the total number of launch participants now stands at nine, encompassing banks, clearing firms, asset managers and custodians. 

Vikesh Patel, president, Cboe Clear Europe, said: “We are delighted to have added two major participants in the European securities lending industry to the group of firms supporting the launch of the SFT service and benefit from their collective expertise as we finalise our offering.” 

The participants include borrowers such as ABN AMRO Clearing Bank, Bank of America, Barclays, Citibank, Goldman Sachs, and JP Morgan, as well as agent lenders like BNY Mellon, Citibank, and State Street. 

Patel said: “Their recent commitment – and the calibre of the group of early adopters we have assembled as a whole – clearly demonstrates the growing need to introduce central clearing to the European SFT market and help reduce risk in this key activity.” 

The Amsterdam-based CCP aims to introduce matching, CCP clearing, settlement, and post-trade lifecycle management for SFT transactions in European cash equities and ETFs. 

Alessandro Cozzani, managing director, Bank of America, said: “We are excited to embark on this journey with Cboe Clear Europe. Developing a cleared product for securities lending is a natural evolution in our secured financing market, which should allow for greater risk optimisation with counterparties.” 

Pending regulatory approval, the service will be available to principal lenders, special participant lenders (UCITS and non-UCITS), and borrowers, with settlement occurring in 19 European Central Securities Depositories (CSDs). 

By offering CCP clearing and settlement service for SFTs, Cboe Clear Europe aims to help clients navigate new regulations, reduce risk-weighted asset exposures associated with bilateral SFTs, and foster growth in the market. 

The service also aims to enhance operational efficiency, reduce fail fines, eliminate agent lender disclosures, and improve practices around fees management, corporate actions, and post-trade lifecycle processing. 

Jan Treuren, SFT product lead, Cboe Clear Europe, said: “We are working closely with all of our launch participants to help shape the first phase of our SFT service offering through a series of regular working groups and key stakeholder meetings. This includes exploring expansion of the service into other assets classes and jurisdictions. At launch, Cboe Clear Europe will be the only pan-European CCP offering these consolidated services for SFTs in European cash equities and ETFs.” 

In Europe, there have been multiple failed attempts to successfully introduce and maintain SFT clearing in the past, with the most recent high-profile cautionary tale coming through Eurex Clearing which announced it was shutting down its Securities Lending CCP service in 2021 as a result of low clearing volumes and a prioritisation of other businesses.   

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The intensification of financial regulation is a fundamental trend transforming the asset management ecosystem. The planned transition to T+1 settlement in 2024 and the forthcoming revision of Mifid II are poignant examples of this. These developments highlight how regulations, even when specific to a market like the United States or the European Union, can have global repercussions, compelling actors to revise their operations to remain competitive and compliant. 

Beyond T+1 and Mifid II, the overall increase in regulatory requirements presents significant organisational and technological challenges. Players must adapt quickly, investing in advanced systems and enhancing team skills to manage increasingly complex and interconnected processes. This regulatory pressure highlights the issue of critical size. Smaller entities might find it challenging to sustain the financial and operational weight of these demands, potentially catalysing consolidations, strategic partnerships, or outsourcing initiatives for specific functions. 

All these factors create an environment where flexibility and innovation are paramount. Asset managers need to respond not just to current challenges but also anticipate future regulatory developments, requiring a long-term strategic vision and continuous adaptability.

Vikesh Patel, President at Cboe Clear Europe 

Repeated efforts by incumbent exchanges to restrict clearing competition in equities will be a dominant theme of Europe’s post-trade environment in 2024. We could see pressure being exerted to remove interoperability arrangements, as well as undermine the open access provisions that sit at the heart of Mifir – moves that would drastically impede competition. 

The benefits of competitive clearing are recognised and undisputed across the industry – from driving innovation to reducing costs, enhancing service levels, increasing transparency and accountability, and so on. Market participants have clearly been voicing their desire for competitive clearing. We also expect to see a heightened demand for the pan-European clearing model, which we pioneered in cash equities, in other asset classes. In terms of regulation, we believe focus will intensify around settlement efficiencies, anticipating challenges in aligning US and global settlement cycles. Meanwhile, the EU’s CSDR Refit, expected to be implemented next year, could impose buy-ins on UK participants, adding another layer of cost on market participants.   

Natan Tiefenbrun, president, North American and European equities, Cboe Global Markets 

2024 will be the year that the rubber hits the road for the EU’s Mifir review, as the political framework agreed in 2023 is transformed into implementable rules by ESMA. While the EU has agreed to a real-time pre- and post-trade consolidated tape (CT) for equities – the devil will be in the detail. ESMA has important decisions to make including what constitutes ‘real-time’, the workings of the selection and authorisation process (which will determine the governance and pricing to consumers), and the revenue sharing model for data contributors. Thus far, the only declared bidder is the consortia of exchanges that fought the introduction of the CT and tried to undermine its viability, so ESMA needs to encourage additional bidders. To meet consumers’ long-term needs, including for reasonably priced consolidated market data, ESMA must attract and select a provider committed to the speedy delivery and enabling broad adoption of the CT, and to a governance framework that gives consumers a voice. 

The UK’s plans for an equities tape will also become clear: the FCA recently noted overwhelming market support for it to be more ambitious than the EU’s plans, including attributed quotes, and legislation currently before the UK parliament will give the FCA powers to launch a tender process.  Another big theme will be the importance of the retail investor, and how European capital markets can grow by better serving this community. Investor protection measures such as the EU-wide ban on payment for order flow (enforced from 2026) and restrictions on CFD trading may re-shape how retail brokers handle their customer order flow, and what products they make available for trading. It is against this backdrop that Cboe launched single stock options trading on Cboe Europe Derivatives and is enhancing its proposition to retail brokers.

Stuart Lawrence, head of UK equity trading, UBS 
   
This year was a volatile year as markets adjusted to the new “normals” of the central bank policies and dealt with the continued impact of a poor liquidity landscape and ongoing geopolitical events. While the former is now better understood – with the market pricing in potential interest rate cuts next year – the others remain unknowns. 

Next year will bring us the move to T+1 in the US which has knock-on effects for the rest of world. We should gain more clarity on the timing of the UK and EU moves to T+1 settlement, and whether they will move in tandem or not. We feel that the sooner settlement dates are aligned globally the better. 

The discussion around rebundling of payments for research will continue, and we should expect consultation papers from the UK regulator to appear in Q1 and the EU later in the year. If agreed, legislative change could follow soon afterwards. General consensus is that this change will occur but it is important for us to see the details before we can assess the impact. Finally, we await the Mifid II reviews from both the EU and UK which may come next year unless there are setbacks. The details within them will improve clarity on the regulatory landscape for the future. 

Stanislav Ermilov, chief executive, Tallarium 

Emir Refit, which goes live in the EU from April, will undoubtably be an area of significant focus for participants trading over the counter (OTC) derivatives markets. To meet the spirit of the revised rules, which aim to increase harmonisation and standardisation, firms will need to put a renewed focus on data quality. While the rules are geared to simplifying reporting requirements for the post-trade, there is still a need to lay solid pre-trade data foundations for successful compliance. Having a single source of data can allow for much greater cohesion between the front- and back-office with a view to minimise risk – as it helps ensure there is a full audit trail.    

Ultimately, these trading, compliance, and operational challenges that Emir Refit shines a light on can only be overcome fully if firms have the exact same data sets across the front-, middle- and back-office. Currently, a huge amount of resource goes into collating data and verifying that data. Following that, a substantial amount of company time goes into constructing a reliable market picture, where each company replicates the exact same process in-house. This is done based on a combination of multiple sources, raw data, company front office excel and whatever other sources they can obtain. 

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What are the key pain points in the clearing space right now?

Looking at some of the areas of development, a lot has been done in the clearing space and sometimes we can forget the work over the last few years and beyond. We’ve moved a lot in the equity space for more open access. We’ve seen a lot more interoperability and more choice – interoperability being the mechanism by which trading venues allow more than one clearing house, and in doing that, market participants can choose their preferred clearer and where they want to clear.

That has unlocked a lot of benefits, whether that’s pricing, choice, netting or risk. All of that really is geared to mobilising more capital to grow European markets and to grow participants’ own businesses. The other thing that’s been very positive is that clearing has shown that it can deal with volatility and bring predictability to that. Whether we look at the pandemic or the unfortunate impacts from geopolitics, clearing has brought certainty into market structure and post-trade processes, which is something that we should recognise as a net benefit.

Looking into some of the challenges ahead, there’s still a journey to be had in terms of offering full choice across Europe for equities and really looking at interoperability in those markets that don’t have it. We’ve got preferred clearing, where some markets don’t have full choice and full interoperability, but they’ve introduced a halfway house – a stop on the journey – where if two organisations agree to clear somewhere else, that trade can be cleared by Cboe Clear, for example. That’s a great step, however, that’s a stop on the destination and it’s not the final destination itself. There’s still a lot of work to do there.

The other area is expanding clearing into other areas. At Cboe Clear, listed derivatives is a key area that we’re focused on and we’re partnering with Cboe Europe Derivatives (CEDX) and clear indices today. We’re also looking forward to single stock options in November and bringing that same level of innovation, certainty and risk benefit – especially when you can look at your equities business as well – and really trying to drive forward some of those efficiencies that we can offer in the market.

That’s around innovation in adjacencies to where we clear. We want to be able to offer the most amount of netting risk benefit and consolidation opportunities, so that we can get back to the fundamentals, which is releasing capital so that we can grow European markets, trading velocity and support our clients’ growth and their strategies for growth with their clients.

How can the European CCP landscape be better harmonised?

There are three areas. The first one is continuing that journey on open access. Embracing open access and the Capital Markets Union – the spirit within that and the spirits of the free movement of goods services across Europe. That can allow a continuation in the markets where we’re not fully interoperable.

The second area is bringing innovation to new asset classes. Even in the core equity landscape, we’re in very positive discussions on the OTC equity space and how we can bring more of that flow into clearing and how we can improve settlement efficiency by netting all of that together. The last area is around continuing to drive certainty and predictability. We look at our risk practices, our license to operate, our operational resiliency and our cyber security and those are continued areas where a lot of good work in the industry and with regulators continues. That means that everyone can be sure there’s a strong foundation that we’re all operating from.

What hurdles have been presented to securities financing transactions (SFTs) central clearing initiatives in the past and how will Cboe’s model overcome these?

When I reflect on that question, I think about Thomas Edison and the light bulb, particularly the comment that he didn’t fail 10,000 times, he just hadn’t succeeded yet. The market is large, we have by some estimates, US $3.3 trillion in terms of available securities to lend, whether that’s European equities and ETFs, and around $220 billion on loan. It’s a sizable market. What we’ve learned from the industry and from our conversations with participants is, when we looked at this between 2016 and 2017, there was a lot of mandatory change happening in the industry.

We had Securities Financing Transactions Regulation (SFTR) coming in, settlement disciplined regimes as well and everyone had a large book of work that they were looking at. What’s changed now is there are some areas of inefficiencies that are beginning to manifest themselves more than they previously were. We also have more free time with some of those mandatory projects not being as consuming now. Things such as risk-weighted assets (RWA), counterparty risk treatment under Basel 4 – that’s a big driver. You have operational efficiency, so settlement fails.

Whether you have agent lender disclosures, all of these areas are adding more friction into the market. What we’ve learned now is with those areas and in discussion with the market, we are absolutely a solution, being a cleared securities financing transactions (SFT) product. That’s where we’re looking at how we move forward with the broadest possible pool of equities when we launch next year. Dealing with some of these market frictions and capital challenges as well as bringing the benefits of certainty into that market.

What sort of regulatory hurdles exist in this space?

There’s a number of things that will be coming through in the next few months and certainly into 2024 and beyond. The bigger ones are in Basel 4. There is RWA in terms of the counterparty exposures you have. The exposures to a qualifying CCP that Cboe Clear Europe will be subject to regulatory approval, is something we’re looking to have when we clear this.

You have a lower exposure and will have that immediate challenge and opportunity to address that. There are also various agent lender disclosures that are coming in and are in place today, whereas with the CCP, due to our process and being in the middle of every buyer and seller and seller to every buyer – those agent lender disclosures are eased a lot more. There are also various other areas such as indemnification, ratings of beneficial owners and things of that nature that we feel that we can bring some real benefit to when we start to offer a cleared solution here.

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Subject to regulatory approvals, the service will come through its Amsterdam-based clearing house and introduce matching, CCP clearing, settlement and post-trade lifecycle management for SFT transactions in European cash equities and ETFs.

Settlement will take place in 19 European Central Securities Depositories (CSDs).

Cboe Clear Europe has secured the support of a broad range of key market participants, including banks, clearing firms, asset managers and custodians, who are expected to support the launch of this service.

Participant Agent Lenders include BNY Mellon and Citi, while borrowers include Barclays, JP Morgan and Goldman Sachs, among others.

Cboe said it is the only pan-European CCP offering these consolidated services for SFTs in European cash equities and ETFs, and subsequently it expects “to help to bring improved capital efficiencies, enhanced risk management and streamlined operational procedures to this market”.

European SFTs primarily occur on a bilateral basis and are not cleared. However, new regulations are resulting in market participants having to manage increased capital demands and additional operational inefficiencies that increase the costs of bilateral SFTs. This may lead to a reduced capacity and appetite to borrow or lend. 

Cboe’s aim is to help clients navigate the new rules, reduce their capital burdens associated with bilateral SFTs and achieve operational advantages. These include greater settlement efficiency, the elimination of agent lender disclosures, and improved practices around fees management, corporate actions, and post-trade lifecycle processing.

Vikesh Patel, president, Cboe Clear Europe, said: “We are delighted to bring a CCP clearing service to Europe’s SFT market, helping market participants improve their capital and operational efficiencies in relation to these products. It is a natural progression for our business, another important step in our mission to become Europe’s leading multi-asset class clearing house and further demonstrates our commitment to developing innovative client-driven solutions. We are excited to be working with leading firms in the SFT market on this important initiative.”

The expansion of Cboe’s clearing services follows several senior appointments at Cboe Global Markets announced earlier this week. Laura Fuson has been appointed as vice president for futures, overseeing the business’ day-to-day operations alongside identifying areas for growth in product development and distribution, including in the digital asset space.

She joins from SG Americas Securities, where she most recently served as director, primes services and clearing, platform sales.

Elsewhere, Katherine Kirkpatrick has been appointed as chief legal officer of Cboe Digital, overseeing digital asset legal strategy and regulatory initiatives.

She joins from Maple Finance, where she served as general counsel. Previously, she was a partner at global law firm King & Spalding, serving as co-chair of both the financial services and fintech, blockchain and cryptocurrency groups.

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Cboe Europe Derivatives (CEDX), the pan-European equity derivatives exchange of Cboe Global Markets, is expanding its product suite to include single stock options on leading European companies.

The new products should be available for trading by November 2023 and will be cleared by Cboe Clear Europe, subject to the necessary regulatory approvals. 

CEDX is initially planning to offer equity options on companies from 10 European countries (Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Spain and Sweden). Options on stocks from additional European countries are expected to be introduced from February 2024, subject to regulatory approvals.  

Read More – Creating a larger, more liquid European equity derivatives market 

“The addition of single stock options is a key component of our ultimate vision for CEDX and we believe it will accelerate the momentum behind our aim of creating the most complete pan-European equity derivatives ecosystem,” said Iouri Saroukhanov, head of European derivatives at Cboe Europe. 

Read More – Bloomberg equity derivatives specialist joins Cboe Global Markets as head of European derivatives

“We have received strong interest from participants in bringing these products to market, from both the institutional and retail communities, who share Cboe’s desire to expand access to derivatives more widely. We believe the combination of CEDX’s equity derivatives marketplace and Cboe Europe’s highly successful stock exchange – which is the region’s largest by market share – creates a powerful and unique proposition for participants wishing to gain exposure to pan-European equities in a transparent and cost-effective way. 

“As one of the leading US equity options marketplaces, this move also demonstrates Cboe’s ambition to become the leading global securities and derivatives trading network, by replicating its successful products and market constructs in new regions.” 

Read More – Cboe Derivatives Europe brings US market practices to the Bloc 

Like CEDX’s existing index derivatives, the new products are expected to clear into Cboe Clear Europe, a wholly-owned subsidiary of Cboe and the region’s largest cash equity clearing house.  

CEDX first launched in September 2021, initially offering trading in futures and options based on key Cboe Europe single country and pan-European indices. 

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The recognition was effective 10 January, and applies to cash equities and equity derivatives.

Cboe Clear Europe had previously been operating under the UK’s Temporary Recognition Regime following Brexit, while it awaited permanent recognition.

“This recognition is an important milestone for Cboe Clear Europe and the wider industry by removing the Brexit uncertainty faced by UK participants and venues wishing to access our services,” Arnoud Siegmann, interim president and chief operating officer at Cboe Clear Europe, told The TRADE.

“It helps to ensure a competitive clearing environment continues to exist in the UK equities markets and allays any immediate concerns around the continuation of interoperability across Europe being impacted by CCP recognition. Securing permanent recognition and the subsequent stability it provides will also help us revive conversations with exchange groups on further expanding the open access model in cash equities, ultimately benefitting market participants.”

Conversely, UK-based CCPs have not been granted the same recognition in the EU.

European regulators offered ICE Clear Europe, LCH and LME a three-year temporary equivalence until June 2025 earlier this year. However, these measures were not taken with a long-term equivalence decision in mind and were instead put in place to allow participants in the EU to reduce their reliance on them and any negative “short term cliff-edge” effects.

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What will most impact the post-trade space in the next 12 months?

We think the biggest single change to the clearing landscape across equities and derivatives will be the impact of Euronext’s CCP migration, moving from LSEG’s LCH SA unit to an in-house CCP called Euronext Clearing. The market hasn’t ever seen such a mass migration of clearing from one CCP to another in a mandatory form, and on such a short timeline; it is unprecedented.

Everything we’ve seen in the past decade has been small exchanges making changes on the back of M&A, which has taken some time to execute or has been discretionary. The change is logical if you’re an exchange that doesn’t want to embrace true CCP interoperability and you have a CCP within the group that you want to build out, especially when you are using the services of a CCP that forms part of another exchange group. That said, the timelines Euronext has proposed are relatively aggressive. 

What impact will the ongoing Euronext Clearing migration project have on Cboe Clear Europe?

We are able to clear cash equities on Euronext venues under the Open Access provisions in Mifir, and so the Euronext Clearing project should not change that. Whilst they haven’t adopted an interoperable model, Euronext have embraced Open Access, a provision we believe will remain untouched for cash equities in the Mifir Review, which is designed to promote the competitiveness of EU capital markets. We believe a competitive clearing environment is an essential element of achieving that – and to making EU capital markets more attractive to investors generally.

Being more specific, we utilise the preferred clearing model on Euronext markets, which means both counterparties must select us if we are to clear a trade. We have seen a strong uptake of this service in the last two to three years: Last year, on the core Euronext venues outside Milan, we cleared 51.6 million trades, versus 8.9 million in 2021 – representing around 16% market share at the end of 2022. As long as we continue this upward trend, the impact will likely be that clients look to us as the main alternative to Euronext Clearing because of the concerns around the exchange group creating a new vertical silo. Clients want more clearing competition in Europe and Cboe Clear Europe has been extremely successful at bringing this about.

In terms of the industry as a whole, the impact of Euronext’s plans will be significant, as they’re driving the mandatory migration of clearing from one CCP to another on an ambitious timetable. A lot of clients look at CCPs naturally as critical pieces of market infrastructure and onboarding a new one is a major initiative. Many clients will have to onboard Euronext Clearing as a new CCP in new regions and so the impact will be significant.

What are some of the key regulatory topics that you expect to have an impact in 2023?

There are three reviews in flight, Emir, Mifir and CSDR. Emir is probably the one that will affect us the most. We’re still reviewing the European Commission’s recent proposal in detail, but its general intent is to improve the resilience of EU CCPs and make it more attractive to clear EU products with EU-domiciled CCPs– with a particular focus on interest rate swaps. As Cboe Clear Europe doesn’t clear these products, this aspect of the proposal doesn’t affect us directly. Our priorities are  to make sure the review does not impact current interoperability/pro-competition arrangements in cash equities, and to ensure the supervisory framework supports resilience and enables innovation. In Mifir, the continuation of Open Access for cash equities is our main focus and ensuring the EU continues with that philosophy. We don’t want any kind of opportunity for exchange groups to reverse what we’ve achieved in the last 10 years in terms of clearing competition. Our venue access now constitutes roughly 95% of all on-venue equity trading in Europe, which has helped us to lower post-trade costs significantly. But there are still lots of things we can do to bring further efficiencies to clients.

For CSDR, we did a lot of work when it first went live at the start of 2022 where we operated a penalties collections service for the industry on late settlements. The CSDR Refit has relieved us of that collection responsibility, which in theory is a good thing and puts the onus on CSDs to control it all. The other key part of CSDR is the ongoing conversation around mandatory buy-ins which were suspended pending further discussion. There are now discussions around discretionary buy-ins, or buy-ins on certain asset classes, so we’re keeping an eye on that to see how that impacts us, especially as we were considering whether to become a buying agent under the original regime. We are seeing settlement efficiency improve. Industry efforts to comply with CSDR in the last 12 months are going in the right direction and client behaviour is improving but fines for late settlement remain high.

What role do you think Brexit is playing in the recent proposals around post trade?

Brexit is obviously playing a key role in post-trade markets, with the political desire to attract more clearing into the EU very evident in the Emir review. Given that, part of our focus around EMIR will be to ensure that it enhances the regulatory framework around CCPs in a manner that promotes both safety and innovation. There have been continuous extensions on CCP equivalence, both on the EU and UK side, which has limited any sort of widespread impact to date on the clearing landscape. As an EU-based CCP, we do need to secure UK equivalence with the Bank of England. We are currently part of the UK’s temporary recognition regime, which expires at the end of 2024, and are in advanced conversations with the Bank of England to make that temporary condition permanent so we can continue our services in the UK.

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