Newspaper article The Evening Standard (London, England)

Battle Is on as London Launches a Unique Product; City Comment

Newspaper article The Evening Standard (London, England)

Battle Is on as London Launches a Unique Product; City Comment

Article excerpt


MERGERS between stock exchanges get the publicity but rationalisation and modernisation of the processes after a trade has taken place is where the real need lies. Indeed, if forecasts for the growth of European equity trading are borne out and individuals across the Continent do turn to funded, equity-based pension schemes for their retirement savings, there are serious doubts about whether the creaking infrastructure in its present form will be able to cope.

That is one reason why today marked a watershed for the London equity markets with the launch - on time and on budget - of the product of a unique three-way venture between the Stock Exchange, the London Clearing House and Crestco, the provider of settlement services.

The new service is known as the central counterparty and its purpose is to stand at the other side in all stock exchange trades. Anyone disposing of stock will sell it to the central counterparty. Anyone buying will purchase from the central counterparty - though in both cases they will continue to deal through their broker, and as customers will probably not notice any difference.

The CCP will guarantee the anonymity of trades. No one will be able to see who is buying or selling on the other side. It will make life administratively simpler in that all settlement will be with just one party, not with a web of bilateral settlements.

This in itself is a significant step forward but it will become even better in 12 months' time when the system will launch its netting service - which means firms will be able to add up all their purchases and sales and only settle the net amount. This has benefits not only in administrative simplicity but also in reducing their need for regulatory capital.

The real significance of today's news, however, is the message it gives that Europe's equities infrastructure can be modernised without going through the pain of mergers, with all the regulatory and other baggage that they bring with them. …

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