To Consolidate or Not to Consolidate?

Whereas the US has just one Central Securities Depository (CSD), i.e. the Depository Trust & Clearing Corporation (DTCC) and five CCPs, of which two are DTCC subsidiaries, Europe has 30+ CSDs and 18 CCPs.
Proponents of consolidation argue that the abundance of Financial Market Infrastructures (FMIs) in the EU is making the region’s capital markets increasingly uncompetitive, especially when benchmarked against the US.

Not everyone believes consolidation is a feasible option though.
“In the CCP space, I do not see much room for consolidation as CCPs in the region each support different asset classes,” said Bayley.

To make the EU’s capital markets more attractive, there needs to be less focus on driving CCP consolidation and greater emphasis on tackling regulatory divergences. “Focusing on CCP or CSD consolidation without addressing the underlying issues is not the answer. I believe that by addressing the root causes of divergent regulation, particularly in the areas of insolvency and tax, we can build the conditions to facilitate competition,” added Bayley. 

Competition is being enabled by CCP interoperability within the EU, raising further doubts as to whether consolidation is needed.

“I do not think that forcing CCP consolidation would bring any benefits to encourage more investment or to foster a European Capital Markets Union (CMU). 70% of CCP flow in Europe is interoperable, 16% is preferred only, and the remaining 14% is in silos, mostly in the smaller economies. With interoperable CCPs, you can trade on most European trading venues, net and consolidate your flows with a CCP and then settle in a CSD of your choice. This allows members to streamline their processes and minimises fragmentation,” said Bayley.

While there may be merit in accelerating consolidation in some of the smaller markets, it would be better value-add to encourage more trading venues to open themselves up to interoperability.

CCPs, including SIX CCPs, SIX x-Clear and BME Clearing, are improving their service levels by clearing a wider mix of assets.

SIX already clears a diverse range of assets, including interest rate swaps and repo. Crypto Exchange Traded Products (ETPs) have been on offer by SIX x-clear for several years and are becoming increasingly popular with institutional clients. That’s why SIX is also adding crypto ETPs to its product through our Spanish CCP, said Bayley.

This comes as crypto ETPs continue to attract significant flows. According to ETFGI, assets invested in crypto ETFs and ETPs reached a new record earlier in the Summer, rising to USD 91.69 billion, having increased by 506.4% over the course of 2024.
Bayley continued SIX is also providing clearing services to ARTEX, a multilateral trading facility that allows investors to access the fine art market. “We believe that building an offering across several asset classes can bring efficiencies and benefits to our members and we are working with our risk teams to innovate in this area,” Bayley added.

CCPs in Europe are competitive, evidenced by their willingness to embrace interoperability and innovate , i.e. by clearing new asset classes. The authorities could make the EU more competitive by concentrating less on FMI consolidation, and instead focus on ironing out regulatory divergences.

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