Latin American Capital Markets

PROMOTING REGIONAL CAPITAL MARKET INTEGRATION 191Not all markets need a CCP—cost-benefit analysis would be required tomake such an assessment—and not all markets have one. For example, while mostfutures markets typically have a CCR not all cash markets do. But even for thosecountries that do have them, there is no consensus about what the optimal structureof CCPs should be across countries. This section presents three issues relating tohow CCPs might cooperatively seek to promote regional capital market integration:consolidation, cooperation, and the link between CCPs, for example, between theChicago Mercantile Exchange and the Singapore International Monetary Exchange.ConsolidationThe reasons for consolidating CCPs across countries in a region are essentially thesame as those for establishing one in a single jurisdiction, except that the net gains ofdoing so may be greater for regional consolidation. In addition, spreading costs acrossa larger base of trading activity might lead to economies of scale in administration andthe use and development of technology. Exploiting the correlation between underlyingmarkets might lead to better risk management And the merged CCP might reduceoperational costs by establishing links with multiple trading mechanisms, settlementorganizations, and other market participants, including investors, dealers, andcustodians.The issue of whether and how CCPs should be integrated at a regional levelis being most actively considered in Europe. Following the creation of Euronext, clearingfor all three of its constituent exchanges will go through a single legal entity, Euronext'sFrench subsidiary, Clearnet SA.The clearing divisions of the Amsterdam Exchangesand Brussels Exchanges are thus transferring their assets and liabilities toClearnet S.A. The three exchanges have agreed that the French jurisdiction shouldgovern the guaranteeing of all transactions.However, there is a debate about whether and how Clearnet and the othertwo large CCPs in Europe—Eurex Clearing in Germany and the London ClearingHouse in the United Kingdom—should be linked or merged. Clearnet, Eurex Clearing,and the London Clearing House have all explored the possibility of differentmerger combinations. A group of the largest investment banks in Europe, which arealso among the largest users and owners of all three CCPs, has recently formed anassociation called the European Securities Forum, which, among other initiatives, is arguingfor the creation of a single CCP to support the equity markets in Europe. Atone stage in late 2000, the European Securities Forum even contemplated creatingits own pan-European CCP if Clearnet, Eurex, and the London Clearing House didCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub