LONDON: Two of Europe’s biggest settlement houses for securities trades are breaking new ground by collaborating to cut costs in the face of huge upheaval in the financial system’s critical plumbing.
SIX Securities Services of Switzerland and Deutsche Boerse’s Clearstream intend to enter a partnership from 2017 to provide services to the Swiss and European markets in future, they said in a joint statement on Friday.
Thomas Zeeb, chief executive of SIX Securities Services, said all settlement houses were wrestling with legacy IT systems and rising regulatory costs.
“We are looking at what are all the things that we do in duplication, as it makes no sense to keep duplicating all that effort on multiple systems,” Zeeb told Reuters.
“There would still be elements where we compete.” Settlement refers to exchanging cash for legal ownership of stocks and bonds, the final leg of a trade, a sector that faces a radical shake up due to two key changes.
The European Central Bank is rolling out T2S, a platform that gives users a one-stop shop for settling trades mainly from the Eurozone.
It takes over to a large extent from a patchwork of national settlement houses, which must now develop more “value-added” services and cut costs, or face possible extinction.
New European Union regulation also means settlement houses must seek reauthorisation, which may not be worth the large expense unless they can generate new business to replace volumes lost to T2S.
“We have all talked rather in the abstract about consolidation in the industry, but we are taking that head on,” Zeeb said.
“It’s certainly one of the first concrete examples of collaboration as opposed to just buying or selling out of an existing business.” Longer term, the aim is for one platform to underpin markets that would still have their own legal entities due to national laws — and potentially attract other settlement houses as well.
“Are we looking to be together with Clearstream a consolidator rather than someone who gets consolidated? Absolutely,” Zeeb said.
He declined to specify which new services the collaboration aims to offer, or give a figure on cost savings.
The collaboration will be seen by the wider sector as Clearstream bolstering its footprint in the face of arch-rival Euroclear.
“The cooperation is intended to improve the client offering as well as our respective market positioning,” said Jeffrey Tessler, chairman of Clearstream.
SIX Securities Services is part of the SIX Group, which runs the Swiss exchange in Zurich. Clearstream is part of Deutsche Boerse, which is seeking regulatory approval to merge with the London Stock Exchange Group.
