New EuroCCP White Paper Offers Proposals to Reduce Risks of Interoperability

Outlines four key recommendations for managing risk relating

London, 13 January 2010 - In a white paper published today, EuroCCP presents a series of recommendations to address regulatory concerns about potential systemic risk problems that may result when multiple equities central counterparties (CCPs) in Europe interoperate.

Regulators have put on hold interoperability arrangements in Europe pending a full review of the systemic risks attached to multi-CCP interoperability. The paper released today provides EuroCCP’s perspective and outlines possible approaches to mitigating these risks.

“We share the regulators’ concerns. Arrangements between multiple, competing CCPs, where each CCP becomes a counterparty to the other interoperating CCPs, requires a new framework for managing the liquidity and credit risks such arrangements may create,” said Diana Chan, CEO of EuroCCP. “EuroCCP wishes to work with others in the industry to craft an approach that manages these risks properly, in both normal and extreme market conditions. Proposals have to be scalable and allow competition to flourish in Europe’s equity markets.”

The paper, Recommendations for Reducing Risks Among Interoperating CCPs, discusses several options and offers four primary recommendations:

1. CCPs should augment their existing default funds to cover potential close-out losses in the event of an interoperating CCP’s default.
2. An Interoperability Convention, to provide transparency of arrangements between interoperating CCPs, should replace confidential bilateral agreements.
3. Commercial barriers to interoperability should be removed. Each market participant should be able to choose which CCP they use.
4. Longer term, further consideration should be given to inter-CCP netting, whereby a netting agent would be established to determine each CCP’s net securities and cash position against the other CCPs.

“EuroCCP aims to make interoperability safer and easier. Collective action among CCPs and engagement with market participants and regulators is essential to delivering the benefits of interoperability,” Chan said.

The paper is part of EuroCCP’s drive to build a stronger European equities market through promoting competition, reducing frictional costs and strengthening risk standards.

About EuroCCP

European Central Counterparty Limited (EuroCCP) is a UK-incorporated, FSA-regulated Recognised Clearing House headquartered in London. EuroCCP was formed to provide clearing and settlement services for trading venues across Europe, offering the scale economies of its parent, the Depository Trust and Clearing Corporation, to European market participants. It currently clears equity trades in 15 countries and in seven currencies. EuroCCP has been appointed to provide central counterparty services by Turquoise, SmartPool, NYSE Arca Europe and Pipeline for equity trades. EuroCCP has also entered into a Memorandum of Understanding with NASDAQ OMX to provide clearing services for its exchanges in Copenhagen, Helsinki and Stockholm. Market participants can trade equities on any venue EuroCCP supports and have their transactions netted for settlement and/or margin purposes for the same security traded on the same day, thereby reducing costs and operational risks.

About DTCC

The Depository Trust & Clearing Corporation (DTCC), through its subsidiaries, provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments and over-the-counter derivatives. In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with financial firms and third parties that market these products. DTCC's depository provides custody and asset servicing for more than 3.5 million securities issues from the United States and 121 other countries and territories, valued at US$33.9 trillion. In 2009, DTCC settled more than US$1.47 quadrillion in securities transactions. DTCC has operating facilities and data centres in multiple locations in the United States and overseas. For more information on DTCC, visit www.dtcc.com.