20 February

Spanish Market Reform - 1st Migration Weekend Dress Rehearsal

Following the successful implementation of Target 2 Securities (T2S) Wave 4, EuroCCP is now in the process of preparing for the first Migration Weekend Dress Rehearsal for T2S Wave 5. As Euroclear Finland has postponed its migration to T2S, EuroCCP will only migrate its Spanish settlement activity to T2S during Wave 5 and this will be tested in close cooperation with Iberclear and the Post Trade Interface (PTI).

Questions & Answers

EuroCCP is a central counterparty (“CCP”) that clears equities traded in Europe. Here are some examples of questions and answers you can find in the Perspectives section:

Where can I find background information on the enhanced Stamp Duty Reserve Tax Assessment Service?

Background information is available on the HMRC website and Euroclear UK and Ireland’s website

What is clearing?

Clearing has many different meanings within the financial markets. In its broadest definition, clearing is a post-trade activity and aims to reduce risk. This often means using a central counterparty (CCP) to eliminate risks associated with the default of a trading counterparty.

In the OTC derivatives markets, ‘bilateral clearing’ means two parties to a trade make their own arrangements to reduce their exposure to each other's default.

What is a CCP?

A CCP  is a corporate entity that provides a guarantee to both parties in a trade that if one party defaulted before the discharge of its obligations, the CCP would fulfil the financial obligations to the remaining party as agreed at the time of the trade. A CCP mitigates replacement cost risk or market risk – that is, the risk that the remaining party has to replace the trade at an unfavorable price.

What services does a CCP provide?

A CCP centralises counterparty risk management and ensures a safe and controlled post-trade process.

A CCP adds value when there is counterparty risk i.e. the possibility that a trading party could become unable to fulfill its obligations, and when there is market risk i.e. the possibility that the price may have moved unfavorably if a trade has to be replaced after a trading party's default.

How do CCPs manage risk?

A central counterparty relies mainly on having sufficient collateral from a clearing participant to cover any losses it might incur if that clearing participant defaulted under normal market conditions. The CCP needs to have access to additional resources if the collateral of the clearing participant is insufficient to cover losses under stress conditions.

"Making the difference in clearing."