Cutting Cross-Border Transaction Costs
"The infrastructure we're building for Virt-x will remove the high settlement costs of cross-border transactions, because we are making everything local," said Iain Saville, chief executive of CrestCo, operator of the UK's clearing and settlement system, in February.
"It will deliver precisely what the European Securities Forum (ESF) wants in terms of cost and risk reduction. If ESF members bring their trade volumes to us, we'll be able to match US trade processing unit costs. This is the European clearing and settlement solution that ESF has been asking for."
At the successful launch of Virt-x last week, chief executive Antoinette Hunziker-Ebneter said: "Today marks a significant step forward in the development of European equity markets. Supported by a unique concept for settlement providing members with a choice of three different CSDs, Virt-x plays a big part in the development of a low- cost pan-European clearing solution.
"We believe that Virt-x will deliver real cost savings to the industry and benefit from first mover advantage to develop critical mass in this rapidly expanding pan-European blue chip equity market."
Is the clearing and settlement model for Virt-x - which will ultimately include the London Clearing House as a central counterparty - the right one for Europe? As Saville said, it certainly chimes with the ESF's core principles, offering a choice of settlement platforms to reduce cross-border costs and separating ownership and control of the front and back offices. With the involvement of LCH, it will also reduce risk, another guiding light of ESF's mission to improve the European infrastructure.
CrestCo and SegaInterSettle, two of the three CSDs (central securities depositories) involved in Virt-x and joint founder members of The Settlement Network, believe strongly that these linkages, rather than CSD consolidation and merger, are the best way forward. At the moment, however, they have been unable to convince many other European CSDs of the benefits of multilateral connections and resource sharing. Euroclear, the third Virt-x CSD, has been hedging its bets all over the continent, merging with the French, Dutch and Belgian CSDs to create a clearing and settlement utility for Euronext while taking a 20% stake in Clearnet, the clearing agency.
Proponents of the Euronext/ Euroclear solution claim that it will reduce settlement costs in these markets by 95%, to about E0. …