The hybrid clearing and settlement model will allow both buy-side and sell-side firms to minimise counterparty risk exposure in the clearing and settlement cycle, reduce associated costs and maintain anonymity when trading block trades and algorithmic orders. This new process enables all users to continue to clear and settle trades in standard ways, but with significant extra benefits.
Under this unique structure, buy-side customers will have the ability to settle across BNP Paribasâ settlement account in a âModel Bâ arrangement. BNP Paribas will provide counterparty risk management by allowing Pipelineâs clients the security of a AA rated balance sheet. Sell-side firms trading with Pipeline will benefit from EuroCCPâs provision of Central Counterparty services, therefore providing risk mitigation of each trade through EuroCCP.
In addition to offering a lower risk model throughout the clearing and settlement lifecycle, the unique combination of a central counterparty with a buy-side settlement process offers sell-side users the potential for additional settlement netting benefits.
The clearing and settlement solution will be available across more than 5,000 securities, covering all equity instruments in 14 countries as Pipeline continues its phased European launch over the coming months. Pipeline intends to extend this unique model further through the addition of more CCPs over the coming year. The addition of more CCPs will offer users greater potential netting benefits and will provide a novel and anonymous platform for risk free and vendor neutral competitive clearing with increased back office and clearing cost efficiencies.
Commenting on the creation of this innovative new clearing and settlement model Marcus Hooper, Executive Director of Pipeline Financial in Europe, said:
âProviding our trading community with a low risk clearing and settlement service tailored to client needs has been important to Pipelineâs success in the US. We are committed to extending this approach in Europe as we take the latest step in realising the vision of MiFID not only through the introduction of innovative new execution services, but also in the field of clearing and settlementâ.
âThis unique new solution will provide risk reduction benefits to both buy and sell-side clients whether they directly use a CCP or not. In these volatile market conditions where liquidity is more difficult to source and risk is a constant concern, we want to provide new and better solutions to clients. Offering this new hybrid model B / central counterparty clearing and settlement model will set a new standard in client risk management and enable considerable savings in settlement costs. Todayâs announcement marks the latest milestone in Pipelineâs introduction of innovative new services in the European trading marketplaceâ.
Steve Wood, Global Head of Trading at Schroders Investment Management commented:
âThe reduction of risk is more important than ever in current market conditions and intelligently managed counterparty exposure is paramount to securing a risk-free environment. This solution enables participants to protect their identity when trading, and achieve improved risk management and cost efficiencies.â
Commenting on the partnership, Jason Nabi, head of Financial Intermediaries Solutions UK, BNP Paribas Securities Services said: âSince the launch of our single-tier Hybrid Clearing Model for MTFs last July, we are pleased to have partnered with Pipeline Financial to provide their back-office outsourcing and settlement. As one of the most successful alternative trading systems in the US, Pipeline forms an important part of our market infrastructure strategy. We are pleased to be offering them this unique and market leading solution for their back-office requirements.â
Diana Chan, Chief Executive Officer of EuroCCP, commented: âWe are delighted to partner with Pipeline to deliver this groundbreaking hybrid clearance and settlement solution to the European marketplace. We believe EuroCCPâs central counterparty guarantees will meet a rising demand from Pipelineâs sell-side and buy-side clients for safety and certainty in their block trades in Europe. We are committed to supporting the innovations of the trading venues we clear for.â