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The Big Interview: Diana Chan
As the long-standing chief executive of EuroCCP, Diana Chan, steps down from her role, Hayley McDowell asks about with the company and what she believes the next decade holds for clearing.
Hayley McDowell: Having announced your plans to step down as CEO at EuroCCP, describe your journey with the company over the past 10 years. Diana Chan: I became chief executive at Euro- CCP when the multilateral facilities( MTFs), which were enabled under the first MiFID, started setting up in 2007. I had already been working on pan-European post-trade issues for a few years, and felt that leading EuroCCP, a new financial infrastructure, to bring about competition and change in equities trading was what I wanted to do next. I am very happy to have achieved that objective, in spite of many challenges along the way.
MiFID introduced competition to stock
“ In the 10 years I’ ve been running EuroCCP, the market has transformed considerably for the better. Competitive clearing has brought clearing costs down by more than 90 %.”
trading, so that the same stock could be traded on multiple trading platforms across Europe. The first MTF, Chi-X, eventually became a runaway success. EuroCCP was set up to provide clearing for the second MTF, Turquoise, which was started by a consortium of nine investment banks. Fast forward a few years – the firms that traded on the MTFs realised that when they trade the same stock on multiple platforms each using different central counterparties( CCPs), they needed to settle the same stock and provide collateral to each of those CCPs. It was not efficient and expensive.
The solution was for each trading platform to appoint more than one CCP, so that trading firms could direct their trades in the same stock on multiple trading platforms to the same CCP. The CCP would then net the firm’ s trading positions across all platforms it clears for, resulting in a single settlement per stock and a single margin requirement on the net position. This would require all the CCPs clearing for the same platform to interoperate – that is, have arrangements in place to manage their exposure to each other. But it was not easy for the incumbent CCP on a platform to agree to let in a competing CCP to share its business.
The problem was solved when Bats Exchange introduced an arrangement called“ preferred CCP” in 2011. Bats added three CCPs that interoperated with each other, without requiring the incumbent CCP to interoperate. The six firms that made the switch on Bats all preferred EuroCCP. It meant that if a trade was executed between any of those six firms it would be cleared by EuroCCP, and if not, it would default to the incumbent CCP. The trial proved that when firms were given a choice of CCP, they would indeed move their business. Then Chi-X, the largest MTF at the time, became four-way and fully interoperable in 2012. Within 30 days,
62 // TheTrade // Autumn 2018