Interoperability as an enabler
The debate over which model is better, namely interoperability, preferred clearing or preferred interoperable clearing, refuses to go away. Indeed, the ongoing conversation about Europe's post-trade inefficiencies highlights the increasing relevance of this discussion.
Each approach has its own unique benefits.
Interoperability occurs when there are links between two or more CCPs, enabling counterparties to the same transaction to clear at different CCPs. Interoperability has been around for almost 20 years and it has ushered in a number of strategic benefits for market participants across the post-trade industry. Most significantly, it has created a more competitive environment for clearing, while also scaling back on the number of CCPs that institutions need to be a member of.
By creating a more competitive CCP framework, transaction fees have fallen per transaction, which is – again - proving invaluable for firms at a time when many of them are facing significant cost pressures elsewhere. It also allows for lower margin requirements, meaning there is less collateral and liquidity trapped at CCPs.
And finally, interoperability reduces the number of settlements per instrument due to the netting capabilities enabled across multiple trading venues.
While interoperability is the most attractive clearing model, adoption rates seem to be stalling in Europe.
This stagnation is not because of waning market interest, but rather due to the reluctance of certain trading venues and exchange groups to open themselves up, meaning users are unable to take advantage of interoperability.
Preferred clearing takes shape
While SIX x-clear has a long track record of supporting interoperability, it is not always available or supported by the local financial market infrastructures (FMIs) in every country.
In its place, some CCPs are now adopting what is known as the preferred clearing model.
Preferred clearing, put simply, is when a trade is sent to a financial institution’s CCP of choice, but only if both counterparties to that transaction select the same CCP. If both counterparties choose different preferred CCPs, or if one counterparty has not selected a preferred CCP, the trade will be sent to the trading venue’s designated or incumbent CCP.
Interoperability remains the gold standard when it comes to true choice, but we accept that preferred clearing is a viable solution for our clearing members under certain conditions and we will continue to push for an expansion of it to additional trading platforms.
Since the beginning of March 2025, trades executed on Euronext’s markets in Paris, Amsterdam, Brussels, Lisbon and Dublin have been benefiting from SIX x-clear’s preferred clearing services, while Euronext Milan is due to be integrated in Q2.
Under this particular preferred clearing model, buyers and sellers on Euronext markets must select SIX x-clear as their preferred CCP. If both counterparties do not choose SIX x-clear, then the trade will be cleared through the incumbent CCP, namely Euronext Clearing.
With this latest addition, Euronext market participants now have more choice. When a Euronext trade is cleared through SIX x-clear, members will benefit from having these transactions integrated into the post-trade processes at SIX. We are confident this arrangement will boost transparency, sustainability and resilience within the financial sector, particularly in today’s volatile markets. SIX x-clear’s expansion into preferred clearing is a key step forward in improving market efficiency, optimising counterparty risk, and delivering a seamless trading experience for users.
Through its highly competitive and sustainable fee structure, and the ability to obtain cross-margining and cross venue settlement netting, opting for preferred clearing with SIX x-clear can help users generate meaningful cost synergies.
As dissatisfaction with the preferred model and the demand for user choice grows, the pivot towards preferred clearing could accelerate the adoption of interoperability elsewhere, thereby improving competition in European markets, a key criterion of the recently published Draghi Report.
The European FMI ecosystem is a fragmented market, at least when benchmarked against the US. If we are able to push interoperability and consolidate more cash equity clearing within the interoperable CCPs, the market as a whole will become more efficient and competitive. While more competition is good, it does not help when that competition is fragmented or when users are siloed across multiple CCPs, “but this fragmentation can be mitigated with interoperability, offering the best of both worlds: choice and efficiency.”
And finally, there is preferred interoperable clearing. A concept first coined in 2011 by BATS Europe, now a part of CBOE Europe, preferred interoperable clearing is when there are multiple, singular ‘preferred’ interoperating CCPs sitting alongside an incumbent non-interoperable provider.
Preferred interoperable clearing allows smaller participants, which mostly trade on the primary market and have limited interest in trading the same instruments across various European trading venues, to continue using the incumbent CCP to which they are accustomed, rather than engaging in interoperable transactions that may result in higher margin requirements.
Fragmentation is often reduced when using the preferred interoperable model as there is a higher probability of trading with a counterparty that is also opting for interoperability, allowing for transaction flows to be consolidated with the main interoperable CCP, and with it, efficiency benefits. This approach also encourages competition as participants can select the model and CCP that best supports their operating models. Preferred interoperable clearing could be the natural progression from preferred clearing towards real competition – especially for markets where multiple preferred CCPs are already active. But this requires the cooperation of the trading venues.
Working with a provider that can offer clients a broad suite of clearing models is key.
Raising the bar: Navigating EMIR 3.0
Regulation continues to come in thick and fast.
SIX x-clear has worked tirelessly to ensure that customers are fully prepared for incoming rule changes, such as the recently updated European Market Infrastructure Regulation (EMIR) 3.0.
Through its acquisition of BME Group, along with its Spanish CCP, SIX now has a solid EU footprint, putting it in an excellent position to support clients with EMIR 3.0. Under EMIR 3.0, financial institutions must clear their euro-denominated interest-rate swaps in active accounts at EU CCPs. With BME Clearing, we have enhanced our interest-rate swap clearing capabilities, which is enabling us to win business from organisations looking to clear euro-denominated interest-rate swap transactions.
Driving ahead with change
Markets today are incredibly complicated, amid a combination of regulation and the emergence of multiple, often competing, clearing models. It is vital firms work with CCPs that can help them navigate these changes, allowing them to focus their energies instead on revenue generation and client relationships.