Euroclear has taken another step in its aim to harmonise clearing and settlement in the countries it covers on to a single platform.
In December, it launched the Euroclear Settlement for Euronext-zone Securities (Eses) platform on Euroclear France. Euroclear Belgium and Euroclear Nederland will migrate to Eses in the coming year.
Eses will process transactions according to European Union-wide agreed rules and practices. It is in line with the recommendations of the Giovannini Group, which identified barriers to clearing and settlement in Europe. The platform will also support NYSE Euronext's single order book for transactions emanating from the Amsterdam, Brussels and Paris bourses.
"The launch of the Eses platform in France represents a big change for the French market, which is now using new market rules on it, for example, on the corporate actions side," says Philippe Verriest, a director in the business model harmonisation division at Euroclear. "Back offices will now use new and agreed ordering of dates to process corporate events (ex-date, record date and payment date) as recommended by the market under the Giovannini Group umbrella."
The introduction of Eses has enabled Euroclear France to decommission the Relit + system. This was previously used for settlement of stock exchange trades.
The parent company began the implementation of Eses with the French market because from a technical point of view, says Verriest, Eses represents an upgrade of RGV, the real time settlement platform for Euroclear France.
Euroclear's move to a single platform is being done through a phased implementation.
Eses builds on the single settlement engine and combines the payment, custody and communications features of Euroclear's single platform and common communications interface. It is an interim solution until the single platform is completed and includes temporary adaptations of RGV.
"We don't believe it would be appropriate to introduce the full single platform (scheduled for delivery in 2009/2010) via a ‘big bang' approach because we believe projects of this magnitude take time in order for adequate acceptance testing before going live," says Verriest. "Also, our clients have internal IT costs to manage and by taking a phased approach, this allows them to manage their internal budgets and plan for the transition. There always will be a trade-off between the early benefits of a new system with the project management risk of a major project such as this."
Euroclear also announced that it will put in place a harmonised tariff for the processing of all settlement, custody and related transactions involving equity, fixed income and other securities from the three Eses CSDs. As a result, it is estimated that CSD clients will save a total of more than €15 million, or 10% per year, once all the CSD platforms migrate to Eses in 2008. Once the single platform is launched in 2010, it is expected that tariff savings will be around €50 million (a reduction of 20%) and more than €60 million (or a 25% reduction) by 2012, in line with predicted volume growth. In total, says Euroclear, the single platform will deliver annual savings of €300m to clients.
"Harmonising the Eses tariffs is a very important part of the single platform," says Verriest. "There is no reason why there should be any discrepancies in the tariffs from one of the three Eses markets to another, as they will be running the same operational processes on the same platform regardless of physical location. We hope to bring down the post-trading processing costs of cross-border transactions from around €10-15 per trade to a couple of euros and even lower for certain equities transactions."
The first stage of Eses will be followed in February 2008 by connecting it to Target2, the euro real time gross settlement payment system. This was launched by the euro-zone's national central banks under the supervision of the European Central Bank in November. The single platform will be implemented by service, with two main phases being delivered gradually. Single platform custody will be introduced in early 2009, providing harmonised group custody services. In 2010, single platform settlement will be introduced. This will provide harmonised group settlement services, including matching and life cycle management elements.
Euroclear users will connect to Eses and the single platform phases via a common communication interface, which will also be implemented gradually, with certain components delivered as part of Eses and ahead of single platform custody.
Euroclear says it is "well advanced" in its plans to include the UK and Irish markets into its harmonised solution.