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The European Post-Trade Landscape: Regional Integration Initiatives Paving the Way for Industry Consolidation

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24 November 2015
Arin Ray

Abstract

The biggest changes in the global post-trade industry are taking place in Europe. The Eurosystem’s attempts to create a single market and associated market infrastructure are transforming the European post-trade industry.

In the report The European Post-Trade Landscape: Regional Integration Initiatives Paving the Way for Industry Consolidation, Celent discusses the key trends and developments taking place among the central counterparties (CCPs) and central securities depositories (CSDs) in Europe. Eurosystem’s Target2 Securities (T2S) project and the CSD Regulations (CSDR), along with numerous other regulations, are reshaping the European CSD landscape.

As settlement gets outsourced to the T2S platform, CSDs will lose a key revenue stream and will have to find new revenue sources. Developing asset servicing capabilities will be a natural choice, but may not be a winning proposition for all CSDs because they will face stiff competition from custodians and the international CSDs (ICSDs). The industry will likely go through consolidation; it is unlikely that CSDs will go out of business, at least in the short term, but their role will shrink significantly.

The ICSDs are likely to strengthen their position because of their existing capabilities to deal with international securities in a number of markets, and their liquidity and collateral management capabilities.

Regulatory changes aimed at expanding CCP interoperability make the space more competitive and could result in consolidation. Players with wider market coverage, strong capital base, and efficient technology and operational capabilities will be able to capture market share. With equities clearing largely commoditized, players are targeting derivative clearing, particularly OTC derivative clearing, for future growth.

“Ongoing regulatory and market structure changes aim to harmonize and standardize the market, and promote competition,” says Arin Ray, an analyst with Celent’s Securities and Investments practice and author of the report. “Added focus on market safety, stability, and risk management is likely to favor the bigger players.”

The report begins with a discussion on the current state of affairs in European post-trade industry. We identify the key drivers of change impacting the CCPs and CSDs and how they will impact the post-trade ecosystem. We then discuss the several strategies the market participants are undertaking in response to current challenges. The report concludes with Celent’s views about the future evolution of the European post-trade industry.

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