Stewart Brentnall

The firm is the investment and financial management partner of the New South Wales (NSW) public sector, with $115 billion in assets under management.

The total value of TCorp’s investment in Euroclear is $478 million.

Euroclear offers settlement and custody of domestic and cross-border securities for bonds, equities, derivatives and investment funds, alongside collateral management services.

Euroclear serves roughly 2,400 financial institutions, which use its platform to access 50 different markets and settle transactions in 45 currencies.

The group holds roughly $42 trillion of assets under custody and enabled 299 million netted transactions in 2023, worth an equivalent of $1,126 trillion.

“Euroclear is a foundational component of the world’s financial market infrastructure,” said Stewart Brentnall, chief investment officer at TCorp.

“This is a rare investment opportunity offering resilient returns and growth as well as portfolio diversity to our clients. We look forward to working with the board and management of Euroclear.’’

JP Morgan and BNP Paribas acted as advisors to LSEG on the transaction.

“We are delighted to welcome TCorp as a new shareholder. It is a sophisticated global investor with a long-term investment horizon and anchored in the APAC region,” said Valérie Urbain, chief executive at Euroclear.

“This aligns well to our strategic vision of long-term value creation through providing more liquid and stable markets for Europe and beyond.”

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Named Smart Markets, the new service will transform Euroclear’s data into interpretable insights to detect market movements, enhance trading models and build informed strategies.

Smart Markets was developed to meet demand from institutions – including banks, central banks and buy-side trading firms – seeking sophisticated data-driven insights.

“By harnessing the scale and depth of Euroclear’s post-trade ecosystem, which in 2023 settled the equivalent of more than one quadrillion of securities transactions, Smart Markets is able to provide trading firms with a true picture of fixed income activity including government and corporate bond markets,” said Philippe Laurensy, managing director and head of product, strategy and innovation at Euroclear.

“As a financial market infrastructure with a track record of providing high quality settlement services to the world’s leading financial institutions, we are well positioned to drive innovation in the industry and to improve efficiency in the market as a whole.”

Demand for market data from financial institutions continues to rise, and with that, data quality and the ability to interpret large volumes of data has become key.

Smart Markets brings together raw data from market sources including Euroclear, which is then enriched, normalised and analysed automatically.

This enables users to improve their investment and research intelligence, alongside improving post-trade analysis and reporting.

“Mosaic has been at the leading edge of data analytics for capital markets since our inception, and the launch of Smart Markets takes our offering to the next level, introducing a new category of data product,” said Matthew Hodgson, chief executive and founder of Mosaic Smart Data.

“Leveraging comprehensive, high quality transaction data from best-in-class providers such as Euroclear and running it through our proven models gives participants the insights at their fingertips to truly understand market behaviour and make more informed trading decisions.”

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Clients of both the Brussels-based Euroclear Bank and Eurex Clearing will now be able to post collateral directly to Eurex Clearing, with the ability to further optimise the pool of collateral held in Euroclear’s International Central Securities Depository (ICSD).  

“We are excited to have Eurex Clearing joining the group of CCPs using our services to support their critical margining activity.” said Olivier Grimonpont, managing director, head of product management, market liquidity, Euroclear. “As an open financial market infrastructure we continuously strive to benefit our ecosystem by creating efficiencies which contribute to a more stable, secure financial marketplace, providing the best in class service to clients.” 

According to Euroclear, the service offering will increase operational efficiency for market users and streamline the collateral management process. 

Matthias Graulich, chief strategy officer, member of the executive board of Eurex Clearing said: “We are pleased to offer Euroclear Bank as an additional securities collateral location for provision of margin and default fund contributions. With this service we jointly create added value for our clients by facilitating a smooth access to the CCP and by enabling efficiencies across the clearing community.” 

Graulich further added: “Euroclear Bank strengths our offering for the buy-side clients and complements our existing services such as ISA Direct and ISA Direct Indemnified clearing models.” 

The agreement builds on the existing partnership which sees Eurex Clearing already use Euroclear Bank as an eligible securities settlement location. 

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The solution aims to improve the way investors access and manage critical pre-pricing data for newly-syndicated Eurobonds, allowing for increased automation of primary markets and an improved transition into secondary trading.

“We believe there is a need for greater connectivity between the primary and secondary markets and that open collaboration is the most effective way to accelerate change,” Serene Murphy, head of corporate development for Europe and Asia at Tradeweb, told The TRADE.

“Further developing and automating workflows in the primary space will help to bridge the two markets and create a streamlined transition for traders to more readily access and utilise electronic tools in secondary.”

“Through collaborating with our mutual clients, we identified the need to automate the security set-up process in the primary market,” said Enrico Bruni, head of Europe and Asia business at Tradeweb.

“We believe this solution will change the way buy-side investors access essential data for new issues. It’s another step toward a more automated primary market and building greater and faster connectivity with the secondary market.”

Euroclear and IGM’s data solutions will make information describing the new issue, the security identifiers and the deal data available on Tradeweb at a much earlier stage in the trade process and on a real-time basis, as a newly-issued Eurobond is marketed and priced.

By using Tradeweb, participants will be able to consume the collated data shell directly or through Tradeweb’s existing order management system integrations – allowing investors to automatically set up their new issue securities and manage their order and allocation process more efficiently.

“Through this solution, we will address a critical issue for primary market investors around the need for quicker access to reliable new issue deal information for Eurobonds,” said Philippe Laurensy, group head of strategy, product and innovation at Euroclear.

The new service is expected to launch in Q3 2023.

Terry Wilby, managing director at IGM added: “The previous downstream new issue data set-up and reconciliation process was entirely manual and generated significant execution risk. With this new tri-party solution, buy-side clients will have access to trusted, reliable, accurate and timely information on new bonds readily integrated into their OMS, Execution Management Systems (EMS) and internal systems.” 

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Specialising in client services, securities and settlements, Pike was with Morgan Stanley for almost 18 years before he joined Taskize in December 2022. He was instrumental in helping to implement the central securities depositaries regulation (CSDR), which went live in February 2022, and now heads up business development growth for Taskize, Euroclear’s workflow platform that helps the group and its clients resolve matching and settlement problems both before and after settlement date.

What impact did CSDR have and how painful has it been? 

I think it’s fair to say that it would have been more painful if they had brought in the mandatory buy-in regime, but they pulled the plug on that three or four months before the regime was due to go live. Essentially, it would have forced a mandatory buy-in for anybody who was failing to deliver a security. That would have put the onus on the person receiving the security to manage and enforce the mandatory buy-in – meaning they would basically have to go into the market and execute a new trade for the same identical security, then cancel the old trade and pass the cost of the new trade back to the failing counterparty. The concern was that that might drive liquidity problems. It would have cost a lot of money as well – millions of dollars for each institution – had it come into effect.  

Read More – ESMA postpones buy-in regime under CSDR for three years

Once that element was removed, however, CSDR just became a penalty regime: which is good in principle and a strong incentive for parties to settle stuff earlier. However, there are still problems with settlements in Europe, which has a notably lower settlement rate – or in other words, a higher fail rate – than the US. That’s because of some structural issues that need to be resolved.  

What are the structural issues contributing to Europe’s higher fail rate?  

In a nutshell, Europe has more central securities depositories (CSDs) than the US. The US just has one, DTCC. Europe has far more, around 10-15, and that in itself presents a barrier, because some people will want to settle in one, and then the party delivering might be delivering from a different one, so you’ve got the problem of settling across CSDs. That then brings about the process of realigning securities in order to settle them. You’ve also got different currencies, and it’s a much more rigid and robust framework. So we have this concept of matching trades in Europe, before you can settle – whereas in the US, you don’t have that. Now, arguably it’s a stronger system with more robust risk mitigation, but it does also become a barrier to settlement.  

Is there a link between the CSDR penalties and the volume of equities failing to settle? Is CSDR actually working?  

I wouldn’t say there’s a failure of linkage. But I think the problem is that the way the penalty regime works, you essentially get charged as the failing party, or the person who’s deemed to be at fault. 

It’s charged at 1bp per day from the day that it fails up until the point where it settles. So if you think about the equity model, when you execute a trade on behalf of a buy-side institution, as a broker or a sell-side institution, you’re essentially charging a commission rate for equity trades that’s somewhere between 5-10%, so 5 and 10bps. If you’re charged a penalty of 1bp per day, and you’re only making 5bps on that trade, you have in theory eaten through your entire profit margin by the time you get to the fifth day. The challenge of the equity market is that most equities settle locally. So if you’re trading Royal Dutch Shell, you’re likely to settle that in the local Dutch market – or the UK market, because that’s where the liquidity is. But someone might be holding that in Euroclear, so you’ve got to realign it across two markets to settle.  

But that’s not the biggest impediment. The biggest impediment is that actually, more often than not, people don’t have the full slug of inventory they need to settle an individual trade. So if you’ve got a trade for $50 million and you’re only holding $40 million of the security to settle it, that trade still fails for the whole amount. There is a concept called autopartialling, where you can essentially settle the balance that you’ve got; but that requires you to amend the trade, settle the balance you’ve got and then leave a residual component thereafter to settle it, which presents challenges for buy-side institutions as well as for the custodians that support the buy-side institutions. 

For example, if you have a large asset manager who has done a trade for $50 million and they’ve allocated that across 10 funds, and you’re trying to settle $40 million out of that, they’ll then need to work out how to pro-rate that settlement across those 10 funds – or work out how to really calibrate the trade they want to do, then re-book it to settle that $40 million as opposed to the $50 million, and then leave the residual $10 million to settle.

Read More – Trade settlement penalties are high following CSDR, so should the buy-side be receiving more credits?

That’s a big problem for the buy-side. It’s not so much a problem for the sell-side organisations because they just think of it as just one trade to sell to that asset manager. But ultimately, for the buy-side firm, each of those allocations make up 10 individual trades with different legal owners of the securities. That creates a structural challenge. 

What can firms do to amend or improve these issues and reduce their fail rate? 

There’s a bunch of things they could do. One is simply to manage their inventory better, and communicate better. A lot of the problems stem from the fact that while firms are buying and selling a lot of securities, they usually run a pretty flat inventory – they’re not running excess inventory, because it’s inefficient. In the old days what you would have done is filled your failing trade from your existing inventory but with all the capital constraints that have come in, through the Volker Rule and so on, people are running less inventory because it’s costly. The balance sheet cost of holding long inventory means that it disincentivizes people from doing that, certainly on the broker side of the equation. So what they’re essentially doing is waiting for a trade to settle to enable that liquidity to then provide the requisite liquidity to settle the next ongoing trade that is failing. It’s all a chain – a bit like the housing market in the UK, where you can only buy or sell your house if the chain persists and everyone in the chain settles on time so the money passes down the line. The settlement market is a bit like that – each trade has to settle on time to provide the liquidity to enable the next trade in the chain to settle. So the liquidity of the asset they’re trying to deliver on is ultimately derived from a previous trade that’s settled, it’s not coming from their own inventory. They might be holding it internally, but more often than not they aren’t, and that needs to improve.  

The second thing that needs to improve is this concept of autopartialling, which both the buy-side and the sell-side and the custodians should enable so that it happens automatically. That would speed up and improve the liquidity of the settlement process.  

Then I think firms like Taskize can help by allowing parties to collaborate and connect with each other to identify any problems with the settlement – there are any number of things that could drive a settlement fail and being able to identify those quickly, communicate the issues and then collaborate across different firms to fix them, is really important. It compresses their timeline around failing trades, which can save a lot of money in terms of time to settlement.  

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The Bank of England’s annual supervision of financial market infrastructures (FMI) report this week laid out plans for the future supervision of systematically important FMIs.

“As a global financial centre, the smooth and safe operation of UK FMIs is vital for international markets,” said deputy governor for financial stability, Sir Jon Cunliffe. “The Bank’s supervision of FMIs is essential for financial stability by ensuring that their risk management and resilience frameworks enable them to carry out their vital functions in normal times and during periods of stress.” 

The bank regulates three broad categories of FMI: payment systems, central securities depositories (CSDs) and central counterparties (CCPs). Currently, it supervises one CSD (Euroclear UK & International) and three CCPs (ICE Clear Europe, London Clearing House (LCH) and the London Metals Exchange); along with payment platforms including Bacs, CHAPS, LINK, Visa Europe and Mastercad Europe, among others.  

The role of FMIs is to simplify complex networks of counterparty exposures, making financial transactions more efficient and secure. Their central role in the financial system means that maintaining their operational and financial resilience is of crucial importance to financial stability. 

However, FMIs can be exposed to multiple sources of disruption, including from other market participants and service providers, as well as their own operations, which can give rise to both financial and operational risks. “FMIs must be financially and operationally resilient in order to be able to absorb, rather than amplify, shocks,” stressed the Bank of England.  

Market volatility over the past year has demonstrated the importance of the resilience of FMIs for financial stability in the UK and abroad, and the latest report outlines how the central bank has stepped up its supervision of these entities in response to the challenging times.  

This includes a new agenda on CCP resilience and recovery, an updated policy on the recognition and supervision of overseas CCPs and CSDs that want to provide services in the UK, and targeted enhancements to supervisory frameworks – with new requirements on FMI operational resilience including consultations to reflect an increased reliance on outsourcing. Also this year, the Bank published its first public supervisory stress rest of UK CCPs, which (reassuringly) confirmed their resilience to market stress scenarios calibrated to be of equal or greater severity than the worst historical market stresses. 

“The BofE’s annual report reinforces the increasing importance of interconnection between FMIs across Europe.”

“The BofE’s annual report reinforces the increasing importance of interconnection between FMIs across Europe,” said Javier Hernani, head of securities services at SIX Group, speaking exclusively to The TRADE.  

“What market participants crave is a far greater array of choice when it comes to clearing services. For instance, if an international trading firm is opening a new euro clearing account, they need to have direct access to the domestic CSDs. Providing connectivity like this is paramount to ensuring the financial stability that the BofE has outlined.” 

Going forward, the UK’s Future Regulatory Framework (currently before Parliament) is likely to step up supervisory attention, as it grants the Bank of England sole rulemaking power over CCPs and CSDs operating in the UK.  

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In April, The Depository Trust & Clearing Corporation (DTCC) named Francis (Frank) La Salla as its new president and CEO with its current chief Michael Bodson set to retire. La Salla was chief executive officer of BNY Mellon’s Issuer Services business and a member of the BNY Mellon Executive Committee.

DTCC’s incumbent CEO, Bodson will step down on 12 August after a decade in charge of the market infrastructure provider. La Salla will join DTCC on 13 June 2022 as CEO-elect, and between June and August, La Salla and Bodson will work together to ensure a seamless and orderly transition of responsibilities.

Euroclear and Clearstream shut down settlement of Russian securities

In March, International Central Securities Depositories (ICSD) Euroclear and Clearstream announced that they are no longer settling rouble-denominated transactions.

The actions meant that the trading, clearing and settlement of Russian securities have now all been impacted by moves from European market infrastructures, dealing a blow to international investors attempting to sell their rouble-denominated assets. This is in addition to many Russian banks being excluded from the SWIFT network due to sanctions. 

LSEG to acquire market data solutions provider MayStreet

Last month, the London Stock Exchange Group (LSEG) moved to further expand its data and analytics capabilities with the acquisition of MayStreet, a market data solutions provider. LSEG has signed an agreement to acquire the firm in H1 of this year. Further details of the transaction were not disclosed.

Originally founded in 2012, MayStreet provides banks, asset managers and hedge funds with low-latency technology and market data. Upon completion of the deal, MayStreet will join the enterprise data solutions business within LSEG’s data and analytics division alongside data and analytics giant Refinitiv which LSEG acquired in January last year.

Virtu fixed income & foreign exchange head departs for quant firm

In February, Virtu’s head of fixed income and foreign exchange and co-head of crypto, Laine Litman, left the company after nearly eight years. According to an update on social media, Litman has left Virtu to pursue a new opportunity as president of quantitative investment firm Hidden Road Partners, which specialises in short duration credit and financing opportunities.

Before joining Virtu in 2014, Litman spent three years at KCG Holdings as head of acknowledge fixed income, focused on liquidity strategy and sales. Previously in her career, Litman served in futures trading and sales trading roles across UBS Investment Bank, Goldman Sachs and Bank of America.

BNP Paribas completes the transfer of global prime finance and electronic equities from Deutsche Bank

In January, BNP Paribas completed the transfer of clients, technology and key staff from Deutsche Bank’s global prime finance and electronic equities, two and a half years after agreeing the deal.

The combined unit – along with the recently announced referral of clients from Credit Suisse – is set to propel BNP Paribas into the top tier of prime brokers: alongside the likes of Goldman Sachs, JP Morgan and Morgan Stanley. 

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However, in a statement, ICE said that “an alternative group of buyers of ICE’s shares came forward” during the approvals process of that sale.

As a result, the firm has now reached an agreement to sell 5.42% of its stake to French government-owned investment company Caisse des Dépôts et Consignations (CDC) and 4.43% to Belgium government-owned investment company Société Fédérale de Participations et d’Investissement SA (SFPI-FPIM).

The combined total of the sale remains €709 million, with the agreements meeting all required approvals.

ICE increased its stake in Euroclear in February 2018, sparking discussion over its intentions as its chief executive, Jeff Sprecher, said the two groups could work together to explore new opportunities in Europe’s custody market. “We really feel like we can do things with it [custody], together with that company to both help us and the ICE shareholders and help Euroclear,” said Sprecher back in 2018.

ICE had previously used Euroclear as its CSD for its UK and European operations, however in 2017 – following the UK referendum to leave the EU – ICE decided to acquire a stake to maintain a foothold in mainland Europe’s post-trade market.

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The actions means that the trading, clearing and settlement of Russian securities have now all been impacted by moves from European market infrastructures, dealing a blow to international investors attempting to sell their rouble-denominated assets. This is in addition to many Russian banks being excluded from the SWIFT network due to sanctions. 

Euroclear issued a statement to stakeholders yesterday highlighting that external and Bridge free and against payment settlement of transactions in Russian domestic securities will not be executed until further notice. 

In addition, for internal settlement, Euroclear will no longer accept new internal free or against payment settlement instructions in Russian domestic securities as from the close of business 1 March. 

Euroclear has also disabled its account with ING Bank, its correspondent bank in Moscow. The ICSD had already made the same move with VTB Bank. 

In the statement, Euroclear highlighted that as a consequence of new measures from the Central Bank of the Russian Federation (CBR), the National Settlement Depository (NSD) confirmed that Euroclear’s accounts had been blocked until further notice.  

As a result, all assets held in Euroclear’s account with NSD have been frozen and they are no longer able to process receipt or delivery transactions or corporate actions, including income and redemption events. 

Clearstream made similar moves just before Euroclear, late on Monday this week, announcing the rouble would no longer be an eligible settlement currency. Internal and domestic settlement in all securities held on Clearstream Banking’s Depository were also closed until further notice. 

The Luxembourg-based ICSD added that it would offer no foreign exchange services in RUB until further notice, while the institutions are no longer able to conduct business with Russian banks due to sanctions. 

Latest Global Custodian figures show the two largest ICSDs hold over $60 trillion in assets combined. The impact of their response to the Russian invasion of Ukraine and ensuing sanctions effectively means that foreign investors are essentially stuck with rouble-denominated bonds. 

The moves following action taken by stock exchanges in London and Frankfurt to halt trading in some Russian securities, while the UK has also halted clearing in sterling and dollar for Russian banks.

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Following the implementation of the CSDR Settlement Discipline Regime on 1 February, Euroclear is using 

This builds on an existing five-year relationship between the two firms with specific uses now added to support new CSDR requirements. “Taskize is our preferred client service channel and has been successfully deployed globally across Euroclear,” said Stéphane Bernard, chief operating officer, Euroclear Bank. “The ability to extend its use to support the specific workflows for appealing penalties under the new CSDR Settlement Discipline Regime means we can bring further efficiencies to our members who can join the network free of charge as part of our sponsoring licence.” 

Taskize enables Euroclear members to benefit from a single, streamlined digital channel to manage the penalties and appeals process, in addition to achieving radically reduced resolution times for daily operational issues. A specific Taskize Bubble has been built around a penalty appeal template. The platform also enables market participants to report buy-in trades as and when this element of the Settlement Discipline Regime is introduced. 

“Extending Taskize to support custom workflows is part of our wider strategy, so we are thrilled that Euroclear has used this capability to build out a specific Penalty Appeal process to enable their members to manage appeals more efficiently under CSDR,” commented Philip Slavin, CEO and co-founder of Taskize. “With over 400 firms on our network, any CSD can use Taskize, along with the new Penalty Appeal workflow and our integration with email to improve the service they offer their members.” 

The CSDR Settlement Discipline Regime requires impacted European CSDs to automatically apply financial penalties to market participants who fail to complete transactions on the Contractual Settlement Date and subsequently report those failed trades.  

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