First, the quantified efficiency impacts of a European clearing link set-up and a single European CCP are presented in terms of total costs borne by European clearing members section 9.1
Trang 1385 Checking theory against reality – case studies of network strategies
FOR – CAN’T
1 REG
Figure 8.29 Assessment of how many interviewees who were for or conflicted about the creation of a single
European CCP believed that the potential benefits of the initiative can/cannot be achieved
differently 291
Source: Author’s own.
utility-like entities that should preferably be owned and/or governed, the empirical study indicates that this strong sentiment is slowlyfading, at least in the derivatives arena Finally, the US marketplace has alsowitnessed the development of both horizontal (securities and options) andvertical (futures) structures, with varying degrees of user ownership and/oruser governance The fact that most US-based respondents had a futuresbackground explains their reluctance to support Single CCP structures (andindicates that they are content with the less centralised structure of the Amer-ican futures clearing industry)
user-Whereas Figure 8.28 suggests that the majority of interviewees opposedthe creation of a single European CCP, a significant number nonethe-less advocated the initiative or felt conflicted about it The next figure(Figure 8.29) therefore assesses how many of the interviewees who were either
291 Interviewee groups: CM – clearing member; NCM – non-clearing member; ME – market expert;
EX – exchange; CH – clearing house; and REG – regulator Interviewee locations: US – United States;
EU – Continental Europe; and LON – London.
Trang 2for or conflicted about the creation of a single European CCP believed that the
initiative’s potential benefits can or cannot be achieved by different means.Figure 8.29illustrates that of the twenty interviewees advocating a singleEuropean CCP, the vast majority (fourteen out of twenty) believed that thebenefits of a Single CCP can generally be achieved via other means Most ofthese individuals thought that a Single CCP is theoretically the best solution,but that it is simply not feasible to implement this kind of structure in Europe.Four of these interviewees suggested a clearing link initiative as an alternative,and three argued in support of a more harmonised environment withoutfurther specification
Only four of the twenty interviewees advocating a single European CCPwere of the opinion that the benefits of a single European CCP cannot beachieved by different means.292Finally, of the thirteen interviewees who wereconflicted, the majority (nine out of thirteen) believed that the benefits of aSingle CCP can generally also be achieved through a different initiative
8.3.3 Summary of findings – impact of a single CCP on efficiency
Now, the honest truth is that the small guys do not benefit from major levels of consolidation And all attempts to bring cross-border differences down generally hurt niche players that are geographically constrained 293
The purpose of this case study was to challenge the findings of Chapter 7regarding the impact of a Single CCP on the efficiency of European clearing.The findings obtained from this study underscore and clarify the prelim-inary conclusions This allows drawing final conclusions The findings aresummarised in the following
8.3.3.1 Scale Impact Matrix – supply-side scale effects
r The implementation of a Single CCP involves a very high degree of valuechain, technical and legal harmonisation and integration efforts The imple-mentation of such a network strategy is thus very complex and time-consuming, and likely to involve very high long-term investments
r Whereas the creation of a Single CCP offers high potential for increases inscale and scope, the extremely complex and thus costly integration processcan be assumed to involve significant investments The ultimate magnitude
292 Two respondents did not make clear whether or not they believed that the benefits of a Single CCP structure can or cannot be achieved differently.
293 Statement made by interviewed clearing member representative.
Trang 3387 Checking theory against reality – case studies of network strategies
of economies of scale and scope is therefore diminished by these acting forces
counter-r Additional complexities (including regulatory and political hurdles) related
to integration and coordination, together with possible duplicated efforts,increased communication costs and slow response times can translate intofurther costs, possibly even to diseconomies of scale
8.3.3.2 Scale Impact Matrix – demand-side scale effects
r A Single CCP positively impacts the size of the CCP level network; the site is true for the GCM level network The full integration of the partneringclearing houses makes it attractive for a number of market participants todisintermediate their clearer(s)
oppo-r Whereas a single European CCP (when fully integrated) eliminates theopportunity for any of the involved clearing houses to establish a lead inEurope through their installed base, it cannot be assumed that the creation of
a Single CCP would inhibit the emergence of new, competing clearing houseswithin Europe The consolidated infrastructure could thus face competitionfrom new market entrants
r This similarly suggests that the growth potential of a Single CCP network
is likely to be limited The appeal for other clearing houses to join such aCCP network is limited, because potential partners usually do not have theleeway to benefit from and further leverage their installed base
r Single CCP initiatives (as a particular form of M&A initiatives) have thedrawback that the majority of resources must be committed to the inte-gration of the partnering clearing houses; this type of network initiative
is thus unlikely to leave sufficient resources for additional projects or tospur innovation The drain on resources also hampers the potential for theinternalisation of GCM level network effects (and consequently diminishesthe attractiveness for counterparties to disintermediate their clearer(s))
8.3.3.3 Transaction Cost Impact Matrix
r For regionally active clearing members (CMPR/CMAR), indirect transactioncosts are likely to increase if their home clearing house engages in M&Ainitiatives leading towards the creation of a Single CCP The nature ofthese initiatives gives clearers no choice of participation; participation isobligatory The magnitude of the increase of indirect costs depends on thestructure of the initiative and the characteristics of the clearing member.294
294 One of the most crucial issues in this context is which clearing system will ‘survive’.
Trang 4Clearers must thus potentially bear investments that will not be outweighed
by cost savings or increased revenues
r Regionally-to-globally active clearing members (CMPR-G/CMAR-G) benefitsignificantly from the opportunity to clear many markets through theirhome clearing house, thus disintermediating their away market(s) clearer(s).The magnitude of such a cost reduction depends on the structure of theinitiative and the characteristics of the clearing member Cost reductionscan be counteracted by investments resulting from the need to implementand adapt to a new system, acquire knowledge, etc
r For globally active clearers with an agency focus (CMAG), the main benefit of
a Single CCP rests in the ability to centralise their various clearing ships into a single relationship with one clearing house, which significantlyreduces their indirect costs For these clearers, cost reductions are unlikely to
relation-be counteracted by investments resulting from the need to implement andadapt to a new system, because they are already members of all EuropeanCCPs
r Globally active clearing members with a prop focus (CMPG), on the otherhand, strive to benefit from reductions in clearing house fees as a result of
a Single CCP
8.3.3.4 Efficiency Impact Matrix
r A single European CCP does not translate into efficiency gains for all clearingmember types Regionally active clearers (CMPR/CMAR) in fact suffer fromefficiency losses as a result of a Single CCP
8.3.3.5 Business Model Impact Matrix
r Whereas a single European CCP benefits globally active clearing memberswith a prop focus (CMPG) or an agency focus (CMAG) in terms of efficiencygains, clearers with an agency focus are likely to suffer from revenue decreasesdue to disintermediation It is thus doubtful that globally active clearingmembers with an agency focus would support the creation of a Single CCP,unless they were somehow able to retain a significant stake in the CCPs’governance and/or ownership
r User governance and/or user ownership is the only means for clearers with
an agency focus (CMAG) to exercise control over the rules of Europeanclearing and restrict access to the CCP network – and thus the only way tocircumvent disintermediation and the associated revenue losses
Trang 5389 Checking theory against reality – case studies of network strategies
8.4 Final assessment – impact of network strategies on efficiency
The purpose ofChapter 8is to challenge the conclusions ofChapter 7with casestudy findings and insights from the empirical study For this purpose, threecase studies were performed analysing clearing links, mergers and acquisitions,and a Single CCP initiative The results of the analyses support the preliminaryfindings: the network strategy best suited to enhance the efficiency of Europeanderivatives clearing is a clearing link set-up, because it is the only networkstrategy that facilitates efficiency gains for all clearing member types
Besides supporting the findings ofChapter 7, the case studies also serve toprovide more detailed insights into the complexities inherent to the imple-mentation of different network strategies in Europe
8.4.1 Clearing links
r Many interviewees found it difficult to assess the suitability of a clearinglink solution for European clearing One of the obstacles to judging clearinglinks is that no link set-up actually exists that could serve as an adequate rolemodel for Europe Clearing links have so far been implemented with theprimary objective of serving trading purposes – a fact that was also found toapply to the case study of the link between Eurex Clearing and The ClearingCorporation
r The GCL (Phase I) is a prime example of a clearing link initiative whosededicated purpose was not necessarily to enhance the efficiency of the clear-ing industry, and it thus consequently failed to deliver significant benefitsand to overcome the starting problem It showed that whereas such a clear-ing link can serve to increase slightly the efficiency of clearing for somemarket participants, there remains a huge unrealised potential for efficiencygains.295
r The case study thus illustrates that if a link interconnects too few clearingnetworks, does not compensate for the lost intermediary (GCM) level byproviding most of these services themselves (thereby successfully internalis-ing GCM level network effects) and neglects to offer a full choice of clearinglocation (including all products), it will ultimately fail to gain traction.Consequently, if the partnering clearing houses do not adequately attempt
295 The unrealised potential for efficiency gains is a direct result of the limitations of the GCL initiative, which have been identified in the context of the section 8.1.2.6
Trang 6to overcome the link-inherent starting problem, a significant amount ofpotential for efficiency gains will go unrealised Such a link initiative is notdesigned to increase significantly the efficiency of the European clearingindustry.
r Additionally, the failure of relevant clearing members to recognise the tial value proposition of a clearing link set-up, low internal prioritisation ofimplementing the link, mandatory open interest transfers, regulatory andpolitical issues can create further uncertainty about the future development
poten-of a clearing link initiative and inhibit clearing members from expectingpositive future network effects and thus aggravate the starting problem
r The case study also suggested that not all stakeholders have a comprehensivegrasp of the concept and value proposition of clearing links in general.Surprisingly, clearing houses in particular proved to know little about theGlobal Clearing Link Although the GCL was never a concept intended toinvite other CCPs to participate, for a European clearing link initiative to
be successful, it is important that all European CCPs understand the value
of interconnecting A link initiative can only flourish if clearing housestruly understand the value of leveraging their installed base, internalisingthe GCM level network effects and using the initiative to strengthen theirunique CCP level network effects
8.4.2 Mergers and acquisitions
r The case study of the merger between the London Clearing House andClearnet revealed that the complexities of successfully implementing M&Ainitiatives between European clearing houses are even greater than assumed
in Chapter 7 In reality, the counteracting forces, such as necessary term investments as well as additional regulatory and political hurdles,significantly impede mergers Within Europe, the full integration of thepartnering CCPs, which is necessary to achieve the maximum efficiencygains, has proved to be next to impossible
long-r The very high complexity of integration inherent to M&A initiatives alsodecelerates the CCPs’ ability to innovate and increases costs If M&A strate-gies are employed to increase the efficiency of European clearing, it is thuslikely that many potential efficiency gains will remain unrealised
r Additionally, the insights generated by the case study underscored thefinding that M&A initiatives do not benefit all clearing members, as theypotentially have a detrimental impact on low volume clearers with a regionalbusiness focus
Trang 7391 Checking theory against reality – case studies of network strategies
r The LCH.Clearnet merger is a prime example of an M&A initiative betweenCCPs that has so far failed to deliver on precisely those issues critical forrealising high efficiency gains for medium and high volume clearers
r The case study also suggests that M&A initiatives between two major pean CCPs by no means necessarily spur the further harmonisation orintegration of the European clearing industry
Euro-8.4.3 Single CCP
r The insights from the empirical study and the M&A and Single CCP casestudies supported the preliminary findings ofChapter 7regarding the com-plexities of combining European clearing houses with different historicalbackgrounds, profiles and legal environments as well as the near impossi-bility of consolidating European CCPs into a single group
r Additionally, the case study insights underlined the findings regarding theunequal distribution of benefits and costs inherent to this type of networkstrategy A single European CCP initiative does not benefit all clearingmembers; it can in fact exert a detrimental impact on low volume clearerswith a regional business focus
r High volume clearers with an agency focus prefer the establishment of aSingle CCP over clearing links, because clearing links can have a significantlynegative impact on their business model and it is generally easier to succeed
in lobbying for user ownership/governance (thus controlling the rules ofclearing) of one single entity than it is for various entities High volumeclearers with an agency focus are therefore likely to oppose a Single CCPunless they have a substantial say in the governance of the clearing houseand can influence the rules of clearing This is the only way for them
to circumvent the risk of disintermediation and the associated revenuelosses
r The analysis also supported the finding that globally active clearers with aprop focus are likely to benefit most, in terms of efficiency gains, from theimplementation of a Single CCP Nonetheless, this group of clearers willonly support a Single CCP if it can secure the means to control the rules
of clearing, i.e make sure that clearing fees (i.e their core cost driver) aresufficiently reduced and that the consolidated infrastructure does not abuseits dominant position Whether or not such fee reductions truly reflect anincrease in internal efficiency of the merged entity or merely represent aquick fix to appease the clearing members that exert control over the SingleCCP would require further research
Trang 8r When Single CCP initiatives fail to translate into indirect cost savings andmerely accommodate clearing members by offering fee cuts, globally activeclearers with a prop focus benefit significantly, whilst all other clearingmember types remain unable to reduce their core cost driver (i.e indirectcosts).
r Regarding the issue of governance, the M&A and the Single CCP casestudies revealed that ceding partial control over a clearing house in thecontext of a merger as a trade-off for efficiency gains makes sense from theperspective of high volume clearers with an agency perspective, as long asthe resulting structure is not a monopoly If the CCP is a monopoly, therisk of disintermediation is likely to exceed the potential benefits for theseclearers
Finally, the case studies also lent support to the preliminary finding thatEuropean derivatives clearing does not constitute a natural monopoly Despitethe widespread belief that clearing generally qualifies as a natural monopoly,
no evidence of this was found in multinational markets, such as the Europeanclearing industry, in which ‘[n]ew clearing arrangements are emerging all thetime’.296
To summarise, whereas different network strategies have varying potential
to increase the efficiency of the European clearing industry, clearing linkswere found to be the only initiative that generates efficiency gains for allclearing members Particular attention must also be given to the impact ofharmonisation and integration initiatives on smaller regional or niche marketsand on clearing members with less negotiating and lobbying power thanEurope’s high volume clearers Although a clearing link strategy is best suited
to benefit all clearers, the implementation of such an initiative will also becumbersome and demand a lot from the different stakeholders Furthermore,there are many kinds of clearing link initiative, and not all of them can serve
to increase the efficiency of European clearing Therefore, the parameters andprerequisites identified in this study as necessary for enhancing the efficiency
of the European clearing industry through a link set-up will be summarisedand further detailed inChapter 10 Prior to that and based on the findings
of Chapters 7 and 8, Chapter 9 provides a quantitative assessment of theefficiency impact of European network strategies
296 Moskow ( 2006 ).
Trang 99 Quantifying the efficiency impact –
European network strategies
Analysing the impact of network strategies on the efficiency of Europeanclearing consists of a three-step approach: the findings derived inChapters 7and8(step 1 and 2) serve as the basis for a quantification of the efficiencyimpact of European network strategies, which is presented in this chapter(step 3)
First, the quantified efficiency impacts of a European clearing link
set-up and a single European CCP are presented in terms of total costs borne
by European clearing members (section 9.1) The next section (section 9.2)breaks these costs down into the members’ average direct and indirect costs.The calculation of the respective efficiency impact is based on the findings
of sections 5.2.3 and 5.2.4, as well as the conclusions derived inChapters 7and8 Finally, a summary of the insights derived in this chapter is provided(section 9.3)
9.1 Total European industry costs
Whereas section 5.2.3 introduced an estimate of the total European clearingindustry costs in 2005, this section presents the recalculated estimate underthe assumption of implemented European clearing links (section 9.1.1) and
a single European CCP (section 9.1.2), i.e quantifies the potential efficiencyimpact of each network strategy As the calculation of costs is based on theresults presented in section 5.2.3, the same caveats apply to the figures pre-sented in the following.1 For details on the quantitative analysis and theunderlying assumptions, refer to Appendix 8
1 An additional caveat applies to the estimated efficiency impact: the implementation of European clearing links or a single European CCP is likely to impact the composition of all-in clearing costs for different clearing member types (see Figure 5.5 ) When a certain network strategy enables a disproportionately higher/lower reduction of indirect costs as compared to direct costs (or vice versa) for certain clearing member types, then this affects the ratio of direct to indirect costs This kind of development is not
Trang 10QUANTIFYING THE EFFICIENCY IMPACT –
EUROPEAN NETWORK STRATEGIES
Total European Industry Costs
Quantifies the impact of European clearing links and a single European CCP on clearing members’ average direct and indirect costs.
European Clearing Members’ Average Costs
9.2
PURPOSE CHAPTER
Summary
9.3
Figure 9.1 Structure of Chapter 9
9.1.1 Efficiency impact of clearing links
This section furnishes a recalculation of the 2005 total costs borne by Europeanclearing members according to the assumption of implemented clearing linksbetween Eurex Clearing, LCH.Clearnet, OMX Clearing, MEFF and CC&G.Figure 9.2 outlines the quantitative results of the analysis.2 Under theassumption of implemented European clearing links, total European costs
of derivatives clearing would have amounted to roughly €1.503 billion in
2005, representing a reduction of 31 per cent when compared with the inal estimate Although this figure pertains to the first level of transactioncosts, i.e all of the direct and indirect costs borne by clearing members, anysuch cost reduction also benefits market participants with indirect access tothe market infrastructure NCMs and other customers, for example, benefitfrom cost reductions when the savings are redistributed within the VPN andare ultimately passed on (either directly or indirectly as part of commissions)
orig-by the clearers to their respective NCMs and/or other customers Under aclearing link scenario, direct costs would have come to about€523 million, orbeen trimmed by roughly 28 per cent Indirect costs would have weighed in
at€980 million, representing a 32 per cent decrease compared to the original
2 Figures are rounded to millions of euros; €100,000 to €499,000 are rounded down, whereas €500,000
to €999,000 are rounded up.
Trang 11395 Quantifying the efficiency impact – European network strategies
Total European Industry Costs* in 2005
Clearing House Charges
Total European Direct Costs
Total European Indirect Costs
980,000,000
523,000,000 WITH CLEARING LINKS
*Costs in EUR
–28%
–31%
–32%
Figure 9.2 Total European derivatives clearing costs in 2005 – efficiency impact of clearing links
Source: Author’s own.
assumption of implemented European clearing links Although the resultshave to be interpreted cautiously for the reasons described in the introductorypart of section 9.1, the findings suggest that high volume clearers with aprop focus can be expected to continue to have a strong lobbying interest inpushing clearing houses to reduce their fees if clearing links are introduced
in the future As for cutting indirect costs further, the other clearing membertypes would likely have an interest in advocating additional external as well aspursuing internal measures (as identified in section 5.2.7)
9.1.2 Efficiency impact of a single CCP
The following presents the efficiency impact of a Single CCP on the totalcosts of European derivatives clearing in 2005 This section thus furnishes
a recalculation of the 2005 total costs borne by European clearing membersaccording to the assumption of an implemented Single CCP created through
a merger between Eurex Clearing, LCH.Clearnet, OMX Clearing, MEFF andCC&G
Trang 120 500,000,000
1,000,000,000
1,500,000,000
2,000,000,000
Indirect Costs Direct Costs
Total Costs European Derivatives Clearing Industry Costs in 2005 Percentage per Clearing Member Type
With Clearing Links
Figure 9.3 Per cent stake of different clearing member types in European derivatives clearing costs in 2005 –
under the assumption of implemented European clearing links
Source: Author’s own.
Figure 9.4 outlines the quantitative results of the analysis.3 Under theassumption of an implemented single European CCP, total European costs ofderivatives clearing would have amounted to roughly€1.958 billion in 2005
As compared to the status quo ante, the implementation of a Single CCPwould have reduced total costs by roughly 10 per cent Direct costs wouldhave come to approximately€629 million, or roughly 13 per cent less thanthe original 2005 estimate of€725 million Meanwhile, indirect costs couldhave been reduced by roughly 8 per cent, for a total of€1.329 billion, underthe same schema
When comparing the effect of clearing links and a Single CCP on total costs(Figures 9.2and9.4), it has to be kept in mind that the figures being comparedrepresent the aggregate of individual cost impacts for each of the 219 Europeanclearing members.4This means that a particular clearing member might haveexperienced more substantial reductions in, say, the cost of capital under a
3 Figures are rounded to millions of euros; €100,000 to €499,000 are rounded down, whereas €500,000
to €999,000 are rounded up.
4 Refer to section 2.5.1 for details on the structure of the European VPN and the total number of clearing members.
Trang 13397 Quantifying the efficiency impact – European network strategies
Direct
Costs*
Indirect
Costs*
Total European Industry Costs* in 2005
Total European Direct Costs
Total European Indirect Costs
1,329,000,000 629,000,000
Figure 9.4 Total European derivatives clearing costs in 2005 – efficiency impact of a single European CCP
Source: Author’s own.
Single CCP initiative, whereas another clearer might have reaped better gainsfrom clearing links
Figure 9.5 outlines the per cent stake that the different clearing bers would have held in the European costs of derivatives clearing in 2005under the assumption of an implemented Single European CCP Again,even though certain caveats have to be kept in mind (see the introduc-tory part of section 9.1), the results nevertheless suggest that high volumeclearers with a prop focus can be expected to continue to pressure clearinghouses to reduce their fees if a Single CCP is introduced in the future Toreduce indirect costs further, on the other hand, other clearing member typeswould likely advocate additional external and internal measures (as identi-fied in section 5.2.7) Figure 9.5 also illustrates that under the Single CCPscenario, low volume clearers would likely suffer from significant efficiencylosses
Trang 14mem-0 500,000,000
Total Costs European Derivatives Clearing Industry Costs in 2005 Percentage per Clearing Member Type
With Single European CCP
Figure 9.5 Per cent stake of different clearing member types in European derivatives clearing costs in 2005 –
under the assumption of an implemented single European CCP
Source: Author’s own.
9.2 European clearing members’ average costs
Section 5.2.4 presented an estimate of European clearing members’ averagedirect and indirect costs This section assesses the average costs for differentclearing member types assuming the implementation of either Europeanclearing links (section 9.2.1) or a single European CCP (section 9.2.2) Again,this analysis does not claim to deliver results applicable to any particularclearing member, but instead provides an archetypical assessment of clearingcosts
The estimated costs enable a better understanding of the efficiency impactthat European clearing links or a Single CCP can have on different clearingmember types’ average costs and also serves to illuminate the possible effectthat certain network strategies could thus have on the structure of the Euro-pean VPN.5The calculation of these costs is based on the results presented insection 5.2.4 and the findings ofChapters 7and8.6
5 A detailed interpretation of these results and their possible effect on the structure of the European VPN are discussed in more detail in section 10.1.
6 The calculation of European clearing members’ average costs under the assumption of implemented European clearing links and a Single CCP are based on the results of the calculation as outlined in
Trang 15399 Quantifying the efficiency impact – European network strategies
CLEARING LINKS
42,288,000 24,860,000 19,694,000
8,288,000 4,643,000 2,603,000
2,358,000 656,000
STATUS QUO
CLEARING LINKS
27,673,000 19,966,000 17,142,000
12,195,000 13,661,000 11,629,000
10,738,000 3,718,000
69,961,000 44,826,000 36,836,000
20,483,000 18,304,000 14,232,000
13,096,000 4,374,000
STATUS QUO
HIGH VOLUME CLEARER
MEDIUM VOLUME CLEARER
LOW VOLUME CLEARER
Costs in EUR
CLEARING LINKS
Figure 9.6 Average annual direct and indirect costs for clearing member archetypes – under the assumption of
implemented European clearing links
Note: Ø = average.
Source: Author’s own.
9.2.1 Efficiency impact of clearing links
This section presents an estimate of the average annual direct and indirect costsEuropean clearing member archetypes would incur under the assumption
of implemented European clearing links (Figure 9.6) From these figures,the clearing members’ average unit costs can be derived, and the efficiencyimpact of clearing links for these clearing member archetypes can be gauged(Figure 9.7)
Figures 9.6 and 9.7 show that increasing volumes continue to lead toeconomies of scale on the part of the clearers; unit costs thus decrease with
an increase of the number of contracts cleared The figures reinforce the vious findings of Chapters 7 and 8 with quantitative cost data, showing thatall clearing member types benefit from European clearing links in the form ofefficiency gains
pre-Appendix 8 These results enable the identification of the efficiency impact of the network initiatives on the direct and indirect costs of different clearing member types and finally lead to the results outlined in
Figures 9.6 , 9.7 , 9.8 and 9.9
Trang 160.43 0.78 1.21
1.32 13.19
0.16 0.21 0.28
0.24 0.42 0.65
1.00 10.05
STATUS QUO
CLEARING LINKS
HIGH VOLUME CLEARER
MEDIUM VOLUME CLEARER
LOW VOLUME CLEARER
–20%
–46%
–24%
Figure 9.7 Average unit costs for clearing member archetypes – under the assumption of implemented
European clearing links
Note: Ø = average.
Source: Author’s own.
In particular, medium volume clearers benefit from reduced unit costs IfEuropean clearing links were implemented, some of these clearers would enjoyunit cost levels comparable to those currently exhibited by high volume clear-ers This illustrates the finding that under a European clearing link scenario,
it would make sense for medium volume clearers to self-clear all Europeanmarkets in which they are active It would thus be logical for a number ofmedium volume clearers to consider disintermediating their away markets’GCM(s)
Section 5.2.4 described unit costs as the central decision criterion forclearing members when assessing the economic prudence of becoming adirect member of one or more clearing houses in relevant markets Networkinitiatives were also identified as possibly having an important impact onthe structure of the European VPN, in particular when initiatives result inincreased economic attractiveness for regionally-to-globally active clearers
of self-clearing many markets instead of employing intermediary services.Figure 9.7therefore suggests that the currently strong position of high volume
Trang 17401 Quantifying the efficiency impact – European network strategies
SINGLE CCP
STATUS QUO
SINGLE CCP
STATUS QUO
HIGH VOLUME CLEARER
MEDIUM VOLUME CLEARER
LOW VOLUME CLEARER
Costs in EUR
SINGLE CCP
46,517,000 27,346,000 21,663,000
10,034,000 5,620,000 3,150,000
3,863,000 1,075,000
30,620,000 22,092,000 18,968,000
14,673,000 16,438,000 13,993,000
17,586,000 6,090,000
77,137,000 49,438,000 40,631,000
24,707,000 22,058,000 17,143,000
21,449,000 7,165,000
Figure 9.8 Average annual direct and indirect costs for clearing member archetypes – under the assumption of
an implemented single European CCP
Note: Ø = average.
Source: Author’s own.
clearers within the European VPN could be diluted if a clearing link set-upwere to be implemented.7
9.2.2 Efficiency impact of a single CCP
This section presents an estimate of the average annual direct and indirectcosts European clearing member archetypes would have to bear under theassumption of an implemented single European CCP (Figure 9.8) Fromthese figures, the clearing members’ average unit costs can be derived, and theefficiency impact of a Single CCP for these clearing member archetypes can
be identified (Figure 9.9)
Figures 9.8 and 9.9 show that increasing volumes continue to lead toeconomies of scale for the clearers; unit costs thus decrease with an increase ofthe number of contracts cleared The figures also illustrate the findings fromChapters 7and 8with quantitative cost data: they show that medium and
7 A detailed interpretation of these results and their possible effect on the structure of the VPN are discussed in more detail in section 10.1.
Trang 180.43 0.78 1.21
1.32 13.19
0.18 0.23 0.31
0.28 0.51 0.79
1.64 16.46
STATUS QUO
SINGLE CCP
HIGH VOLUME CLEARER
MEDIUM VOLUME CLEARER
LOW VOLUME CLEARER
Source: Author’s own.
high volume clearers benefit from a Single CCP, but that the efficiency gainsare not as great as those produced by European clearing links
In particular, medium volume clearers benefit from reduced unit costs.Figure 9.9shows that when a single European CCP is implemented, some ofthese clearers enjoy unit cost levels comparable to those currently exhibited
by high volume clearers This lends credibility to the finding that it makessense for a number of medium volume clearers to self-clear all Europeanmarkets in which they are active – thus disintermediating their away markets’GCM(s) – if a single European CCP is in place
Last but not least, the figures illustrate that not all clearing member typesstand to benefit from the implementation of a single European CCP – lowvolume clearers are negatively affected by significant efficiency losses, i.e costincreases For low volume clearers, the Single CCP scenario diminishes theeconomic appeal of self-clearing, because their costs of production increase.8
8 A detailed interpretation of these results and their possible effect on the structure of the VPN are discussed in more detail in section 10.1.
Trang 19403 Quantifying the efficiency impact – European network strategies
9.3 Summary
This chapter constitutes the final phase of a three-step approach to analyse theimpact of network strategies on the efficiency of European clearing Based onthe findings derived inChapters 7and8, this chapter presents a quantification
of the potential efficiency impact of a European clearing link set-up and
a single European CCP, the results of which are briefly summarised in thefollowing
9.3.1 Total European industry costs
r Under the assumption of implemented European clearing links, total pean costs of derivatives clearing would have amounted to roughly€1.503billion in 2005, representing a reduction of 31 per cent Direct costs wouldhave come to about€523 million, and thus reduced by roughly 28 per cent.Indirect costs would have weighed in at€980 million, representing a 32 percent decrease
Euro-r Under the assumption of an implemented single European CCP, total pean costs of derivatives clearing would have amounted to roughly€1.958billion in 2005 The implementation of a Single CCP would thus havereduced total costs by roughly 10 per cent Direct costs would have come toapproximately€629 million, i.e reduced by roughly 13 per cent Indirectcosts would have been reduced by roughly 8 per cent, for a total of€1.329billion
Euro-r Figure 9.10summarises these findings by giving an overview of the estimatedpotential savings under the assumption of implemented European clearinglinks or an implemented Single CCP for Europe It reveals that while clearinglinks could result in annual total cost savings of approximately€670 mil-lion, a Single CCP would merely save European clearing members around
€215 million in total costs Annual direct costs savings could amount toroughly€202 million in the case of implemented European clearing links
A Single CCP would bring about fewer annual direct cost savings of onlyapproximately€96 million Total indirect costs would be reduced annually
by€468 million through clearing links, but only by €119 million in the case
of a single European CCP
r The finding that a Single CCP provides less overall benefits to the market ascompared to clearing links, results from the fact that some clearing membertypes are negatively affected by the implementation of a Single CCP