Eurex, owned partly by Deutsche Boerse, Europe’s largest exchange, has processed credit-default swaps since July 2009. The Frankfurt-based exchange in September said it’s seeking ways to process some equity-based derivatives, total return swaps and variance swaps even as the biggest traders of credit-default swaps use London-based ICE Clear Europe for clearing.
“We have built our clearing service not just with the narrow focus on CDS but as an engine that’s asset-class agnostic,” Andreas Preuss, deputy chief executive officer of Deutsche Boerse and CEO of Eurex, said at the exchange’s annual investor day in Frankfurt yesterday. It will “allow us to enhance the offering as a reaction to market demand.”
Congressional negotiators today approved the most sweeping overhaul of U.S. financial regulation since the Great Depression, reshaping oversight of Wall Street and some of its most complex financial products. The largest part of the over- the-counter derivatives market is interest-rate swaps, at $349 trillion, according to the Bank for International Settlements.
At the same meeting yesterday, the exchange said European regulators shouldn’t force clearing-house links, or interoperability, for the cash equities market. Regulators are working on the European Markets Infrastructure Legislation, or EMIL, which will focus on central counterparties.
“We do not think EMIL should legally mandate CCP interoperability in cash equities,” said Deutsche Boerse’s Frank Gerstenschlaeger, the board member responsible for cash markets. “The rising number of CCP links is expected to create new systemic risks and additional costs for the market.”
Deutsche Boerse owns, operates and makes money from its clearing and settlement houses, revenue that would be at risk if interoperability became mandatory.
Central counterparties, or CCPs, seek to access each others’ systems, a move that offers traders choice and cuts the cost of trading. It also yokes them together, increasing the risk of one default affecting others.
The European Union’s voluntary code of conduct for clearing, which included interoperability, was signed by Europe’s leading exchanges and clearing houses in November 2006. It aimed to spur competition and improve a system that costs investors as much as 5 billion euros ($6.2 billion) a year.
The process stalled after the bankruptcy of Lehman Brothers Holdings Inc. in September 2008 as regulators studied the risks of clearing houses being exposed to their peers. In February, U.K., Swiss and Dutch regulators reached an agreement and sent a letter to firms saying they don’t object in principle to interoperability, three people familiar with the situation said at the time.