In January 2012 Cboe Europe Equities (Cboe) launched full four-way* clearing interoperability, offering Participants true "user choice" in selecting their Central Counterparty (CCP).
This development will allow Clearing Participants to choose a single CCP for activity relating to any given market segment for a variety of different trading venues, removing the need to fund cross margin arrangements across different CCPs. This should lower Participants' overall trading costs and enable them to manage risk more effectively and efficiently.
The CCPs offering clearing services on the Cboe market are European Central Counter Party NV (EuroCCP), LCH.Clearnet Ltd and SIX x-clear AG. The interoperable group covers all pan-European markets with the exception of Spain.
Participants will need to maintain clearing arrangements with any relevant CCP. Where a transaction occurs between two Participants, each leg of the transaction will be sent to the Participant’s respective Interoperable CCP of choice. Clearing arrangements, either directly or via a General Clearing Participant (GCP), must be in place prior to trading.
* Since the merger of EMCF and EuroCCP Ltd, Cboe supports three-way interoperability.
Cboe Europe Equities (Cboe) operates a concept of market segments across its pan-European stock universe which typically replicate the stocks listed on the primary market of listing. As Cboe offers trading in stocks traded on multiple market segments, identifiers such as an International Securities Identifying Number (ISIN) are not always sufficient to provide a unique identifier for a security and all its associated characteristics, such as location of settlement. Cboe overcomes this by differentiating between stocks by applying the following unique combination:
ISIN / Currency / Market segment
As such, Cboe will only have one ISIN per currency per market segment.
Settlement location for dual ISINs
The market model Cboe has adopted recognises domestic settlement liquidity. Cboe considers numerous factors in selecting the appropriate settlement location. Typically this includes consultation with all Clearing Participants on the location of the current settlement liquidity. For example, although it may be possible to settle a stock at an International Central Securities Depository (ICSD) the majority of the stock may actually be held at the domestic Central Securities Depository (CSD). In order to avoid the costs of transferring stocks between CSDs Cboe will favour the dominant settlement location.
Cboe will also consult with its Central Counterparties (CCPs) to ensure there is sufficient settlement liquidity at this location to ensure all stocks are delivered. Using a CSD other that the market norm can result in settlement tightness and hence increased failure to settle, which in turn could reduce the quality of the Cboe markets.
All Cboe trades are completely fungible with trades executed on the primary market of listing, with settlement at the domestic CSD.
Self Trade Functionality
Trading Participants have the option to request self-trades be suppressed from the clearing and settlement process to avoid clearing and settlement costs for that trade.
To be a qualifying self-trade the following conditions must all be met:
- The orders have the same Participant, Clearing Method and account type (House or Client) (but not necessarily the same port ID)
- That Participant has requested trade suppression for the market segment to which the order relates
Trading Participants must select whether trade suppression is to be activated on a market segment by completing the Self-Trade suppression functionality Form.
When selected from a particular market segment, all qualifying self-trades for that trading participant will be suppressed. This includes trades on the BXE and CXE lit and dark order books.
Impacts for Trading Participants who opt to use this service:
- Qualifying Self Trades will not be included in the CCP or Clearing Provider output.
- Trading Participants will receive a counterparty value of "NONE" in FIX tag 7772 and "N" in the Central Counterparty field in BOE when receiving the Execution report from Cboe Europe Equities. The FIX and BOE specifications are available under the Support tab.
- The "BIC CODE" field of the Cboe Europe Equities end of day report will be set to "NONE" for suppressed Self Trades.
Drop Copies and Clearing Participant Controls
Clearing Participants who wish to receive a real-time drop copy of trading activity for their Non-Clearing Members (NCM) can do so by requesting this from the Trade Desk or through the Post-Trade contact information. In addition, Cboe can offer Clearing Participants pre- and post-trade controls on NCM orders and trades, further information available on request.