SIX
Jose Manuel Ortiz Repiso Jimenez
29 October 2024
With the interest rate landscape as a backdrop, and following on from its acquisition of BME Group, Jose Manuel Ortiz Repiso Jimenez, head of Clearing and Repo operations, SIX, talks to Justin Lawson about central clearing
Image: Jose Manuel Ortiz Repiso Jimenez
How do you see the current landscape of the IRS and repo market, and what trends are shaping their future?
Within the interest rate swap (IRS) market, EMIR 3.0 currently sits at the forefront of market participants' minds.One of the key components of EMIR 3.0 is the active account requirement (AAR), whereby EU counterparties will be mandated to set up active accounts at EU CCPs, together with minimum clearing quotas, for certain interest rate derivatives. The release of the regulatory technical standards (RTS) for this regulation will take place in Q4 this year, with a subsequent go live pointing to the middle of 2025.
In terms of what this means for the future, the key question for the market is what constitutes a reduction in systemic risk from an EU perspective, and perhaps what this translates into in relation to a future migration of risk of euro clearing to the Eurozone. While we would expect this process to be an evolution rather than a revolution, it seems the framework for a migration for a proportion of risk in these products into the Eurozone is starting to take shape. SIX understands that to a certain extent the onus is on us, as a CCP within EMIR, to offer an alternative EU clearing solution to participants that helps to facilitate any migration of risk resulting from EMIR 3.0 while mitigating any additional costs that may be incurred.
In addition to the above, and in light of recent and ongoing economic pressures in relation to rising interest rates, SIX is also aware of the demand from market participants for new liquidity pools in repo markets. Furthermore, cleared repo volumes have peaked as demand for secured funding has grown. Our repo clearing segment (through our Spanish CCP) allows members to clear repo transactions on pan-European sovereign debt.聽Additionally, SIX has extended incentives, in relation to revenue share opportunities, to the repo clearing segment ensuring alignment with those implemented in the IRS segment. So to summarise SIX can offer market participants a competitive repo and IRS clearing offerings, providing access to new liquidity pools, while simultaneously offering unprecedented revenue share opportunities.
How has the acquisition of BME Group enhanced SIX Clearing's capabilities, and helped to better serve your clients across different asset classes?
The combination of BME and SIX, both of which are leaders in their domestic financial markets, has created a more diversified group with a strong presence across Europe, becoming the third largest European financial market infrastructure group.
The acquisition has strengthened both the Spanish and Swiss ecosystems, bringing new capabilities to participants and attracting new global capital pools to Spain and Switzerland.聽It is also important to note that the products and assets classes covered by BME are totally complimentary to those offered by SIX. While SIX x-clear clears UK, European, and Nordic cash equities across multiple venues as an interoperable CCP, BME clears Spanish cash equities, exchange traded derivatives (ETD), crypto, energy and has particularly strong offerings in both repo and IRS as mentioned previously.
In Q1 2025, SIX x-clear will go live with preferred clearing on all Euronext markets, thereby enhancing its market reach to benefit the wholesale market. In addition, SIX x-clear has recently launched a dedicated retail trade offering to enable the retail investor community to realise the benefits from CCP clearing and settlement netting at a significant cost saving.
The regulatory landscape for IRS has been shifting, particularly with the introduction of EMIR 3.0 and the Active Account Requirement for EU counterparties. How is SIX adapting to these changes, and what key challenges are impacting your clients?
SIX engages with the IRS clearing community to ensure we meet the demands for choice and competition within the changing regulatory landscape. The general market consensus is that any enforced regulation that requires market participants to open an AA at a EU CCP, will result in increased fragmentation of portfolios and additional costs. SIX is acutely aware of the additional funding and execution costs that euro counterparties will incur as result of the active account requirement. Our suite of concessions and incentives, to include competitive fees and a revenue share programme that is threshold-driven and open to all rather than a select few, will mitigate these costs and offer an alternative IRS clearing solution in Europe based on, not just regulatory obligations, but also commercial considerations.
Furthermore, SIX Clearing is looking to enhance our IRS offering by implementing a multi-currency model. This product enhancement will ensure the pool of participants who can benefit from the concessions and revenue share programme on offer at SIX Clearing will be increased to non-euro counterparties. SIX is also looking to expand the scope of its collateral eligibility schedule and offer additional ISINs covering multiple countries of issuance and security types for intraday (ITD) and end of day (EOD) margin calls, which again will offer greater flexibility in meeting margin requirements.
SIX Clearing's IRS and Repo Partnership Programme is represented as a unique offering in the market. Can you elaborate on the benefits this programme provides to members?
Partnership or revenue share programmes are not new to the market. However, revenue share and partnership programmes have historically only been open to a handful of market participants, which usually consists of the top 10 clearers at any one CCP. However, the IRS and repo partnership programmes on offer at SIX work on generous revenue share principles, and it is open to all members who trigger a very modest initial margin (IM) threshold.
Once the threshold has been triggered, a monetary kick back of the basis points spreads charged to collateral balance will be paid back to the underlying member on a monthly basis. In addition to this, there is also a further kickback on a proportion of clearing fees. The fact that the revenue share programme is open to all members is unprecedented in the market and, coupled with exponential fee savings in both IRS and repo, SIX is ideally positioned as an attractive alternative in Europe for all IRS and repo clearing requirements.
Liquidity is a key concern for market participants. How is SIX ensuring ample liquidity on its platform?
In addition to the exponential fees saving and revenue share opportunities already available for IRS and repo clearing, SIX are also exploring (subject to regulatory approval) a first movers or liquidity provider programme. The aforementioned programme is designed to offer liquidity providers potential revenue share, to include revenue generated by both spreads on collateral and fees, at segment level. This equates to a very attractive and generous revenue share opportunity for the first five years and perpetual annual member level revenue share opportunities beyond five years.
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