SIX x-clear comments on CESR's recent recommendations for interoperability between CCPs in the EU market

25 June 2009

Marco Strimer, CEO at SIX x-clear commented "Managing risk is the most important function that a central counterparty (CCP) plays. And, it applies in exactly the same way for interoperability between two or more Clearing Houses linking up to each other. It is therefore understood by CCPs that competing on risk elements would be extremely damaging for market stability and defeat the objectives of a CCP to absorb risks in a professional manner.

"The collapse of Lehman Brothers was a huge wake up call for the financial industry and threw the spotlight on the importance of clearing and settlement. CCPs have stood strong in the centre of trading activity to provide the comfort that counterparties and regulators desire. It is recognised that although lower prices are important, efficient and effective risk management is far greater so, and risk is the area that should never be competed on. If there is one function in which a CCP must have expertise in, it is risk management – and understandably in current market conditions it is vital that risk is calculated in real-time.

"Although the road to interoperability has been far from smooth, the industry is certainly moving in the this direction. We are staunch in our support because we know that it works. Interoperability has actually been around since 2003 when SIX Swiss Exchange invested in implementing the 'user-choice' clearing model. This model has worked successfully even in these turbulent times – contradicting comments put forward by a few commentators who believe that interoperability actually increases risk.

"When the LSE allowed its clients a choice of CCP provider and SIX x-clear joined LCH.Clearnet – UBS, the largest single provider of trading liquidity on the LSE, immediately moved all UK equities to SIX x-clear, allowing the bank to combine its UK flow at one clearer and thereby drive down the unit cost of clearing. UBS's implementation highlights the worth of the dual CCP model – namely the ability to pass cost and operational benefits on to clients. Interoperability is not a dirty word, and if managed properly it does not create new or additional risks; if an institution wishes to stay with the incumbent clearer it can, and if it wishes to switch clearers it can also do so without issue. Very little is heard once an institution decides to change provider and in the world of clearing, silence is golden, as it means that all trades are being properly cleared."

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