Euronext has changed how it calculates risk in government bond trades in the first step of what it hopes will transform itinto a regional cleari ng house on par with rivals like the London Stock Exchange (LSE) and Deutsche Boerse.
Euronext bought the Milan exchange last year from the LSE and has begun using its clearing arm CC&G, now rebranded Euronext Clearing, to build a pan-European clearing house that can offer cross-border savings.
Euronext said Euronext Clearing will apply VaR to determine how much margin banks and brokers must post against their Italian, Portuguese, Spanish and Irish government bond trades.
VaR is increasingly used by the world’s top clearing houses for at least some of their products, replacing the MVP SPAN methodology which the Italian clearer had been using for bonds.
Savings for customers using this more precise margin calculation will be “sizeable”, said Anthony Attia, global head of post trade and primary markets at Euronext.
He noted, “Having VaR is more reliable for us in order to capture the different risks and at the same time it should generate efficiencies and more accurate level of margin.”
As a multi-asset clearing house, Euronext Clearing currently provides proven risk management capabilities on 14 markets, across a range of trading venues.
Asset classes cleared include equities, ETFs, closed-end funds, financial and commodity derivatives, bonds and repos.
As announced in Euronext strategic plan “Growth for Impact 2024”, Euronext Clearing will become Euronext’s CCP of choice for Euronext cash equity, listed derivatives and commodities markets.
Euronext Clearing will allow Euronext to directly manage a core service for clients and create value through a harmonised clearing framework across Euronext venues.
The pan European exchange has already said it would stop using LSEG’s Paris-based clearing house for derivatives trades by 2024, and switch to Italy.