Chi-X worries about fallout from Fortis problems Monday, September 29, 2008
The problems which have prompted a bailout of Belgian Bank Fortis will have caused wider ripples amongst the European MTS platforms such as Chi-X.
Fortis, with its' attractive commercial offering, had become the central counterparty of choice for the new market entrants. Seen until recently as financially sound, it provided a reliable and respectable partner for an MTS wishing to quickly get customers onto their platform.
Whilst there is no indication that Fortis will retreat from this space, the concerns about its financial health, even after an injection of new equity by 3 European states, may give existing and prospective customers pause for thought about trading on the MTS platforms. After all, counterparty risk is effectively all with one counterparty. Whilst this is true in other markets with a CCP, as an example LCH operates a member default fund underwritten by other firms which provides a greater financial assurance than relying on the resources of just one firm.
Consequently, I imagine that the sales pitch of Chi-X, amongst others, will be under review on the slides/literature concerning its central counterparty arrangements. Likewise, trading volumes will be under close scrutiny, internally & externally, to detect if there has been any knock-on impact.
Already sensing blood in the water, European Central Counterparty Limited (EuroCCP), the European subsidiary of The Depository Trust & Clearing Corporation (DTCC) says it is ready to step into the breach and provide clearing services for European MTFs such as Chi-X, Nasdaq OMX, Bats and other new execution venues served by troubled Belgian bank Fortis.
More on this here: http://www.finextra.com/fullstory.asp?id=19056