Central Counterparty for Equities

With the introduction of the Central Counterparty for Equities, the Deutsche Börse is investing in the sustained improvement of the securities trading infrastructure. The move entails expanding what was previously a two-step process chain - first trading, then settlement - to include the clearing component.

As in the derivatives market, Eurex Clearing AG acting as Central Counterparty (CCP) enters into a trade concluded between two trading participants and assumes the default risk. During the so-called Settlement Netting, the CCP offsets a market participant's buys and sells. Thus, only the resulting balance is invoiced at the end of the day.

The CCP is Deutsche Börse's answer to the growing demands for standardization, risk management and efficiency in the securities business. Advantages include:

• Anonymity of the exchange participants throughout the whole securities processing chain - simplifying complex trading strategies involving equity market, derivatives market and index products.

• Economical view on settlement risks via Risk Based Margining.

• High degree of flexibility regarding posting of trades within Gross Delivery Management including Settlement Netting option in parallel.

• Good extensibility to include further products, to integrate cash and derivatives platforms and additional Central Securities Depositories (CSDs).

Initially, the CCP's product range is limited to German equities that are held in collective safe custody (CSC) at Clearstream Banking Frankfurt and that are tradable on Xetra. With its first release, the CCP provides the foundation for a fully integrated clearinghouse that will consolidate Deutsche Börse's position as a one-stop provider of securities services.

A further plan is to extend the product offering to include e.g. foreign shares, exchange-traded funds and OTC business within future releases.