Ignace Combes, deputy CEO of Euroclear, is tasked with steering the group through its mission to cut the costs of settling cross-border securities transactions in Europe. He talks to Michelle Price.

Few organisations have set themselves such a technology-driven business strategy as Euroclear, the world’s largest settlement system for securities transactions. In 2002, the bank unveiled its programme to reduce the cost of settling cross-border securities transactions in Europe, an undertaking that would require it to integrate the technology platforms used by the international and national clearing and sett­lement depositories (CSD) operating within the Euroclear group.

Ignace Combes, deputy CEO of Euroclear, is responsible for steering the group through this vast strategic mission, which reached its first major milestone at the start of 2007 with the creation of Euroclear’s single settlement engine. As with many participants in the trading life­cycle, Euroclear is under more pressure than ever to cut operational costs and deliver these benefits to its clients. This, Mr Combes says, “is a very important driver of our business”.

The recent implementation of the Markets in Financial Instruments ­Directive (MiFID), in particular, has highlighted the inefficiencies of Europe’s fragmented post-trade infrastructures, which are being unfavourably comp­ared to the US model. Lacking the sin­gle unified clearing and settlement ­infrastructure found in the US under the The Depository Trust and Clearing Corporation’s supervision, Europe’s settlement costs are much higher. Mr Combes is acutely conscious that these costs represent a major barrier to the realisation of a single European market. More immediately, Europe’s post-trade infrastructure is largely undermining the potential benefits envisaged by MiFID.

Consolidation phase

Euroclear has begun the consolidation of its multiple CSD platforms in order to address these issues. In June, it announ­ced that it had agreed to acquire the Nordic Central Securities Depository, the CSD for the Swedish and the Finnish markets.

The acquisition brings the number of CSDs that the Euroclear Group has had to consolidate to six, in addition to Euroclear Bank, the group’s international CSD. Rationalising these multiple processing platforms will enable it to realise its promised cost savings.

“The cost of running one platform versus several is dramatically less expensive. Moreover, because all transactions will be processed on the same platform, there will be no need for a distinction between domestic and cross-border transactions between clients located in different marketplaces,” Mr Combes says.

The process, now 60% complete, has been painstaking. Properly managing the process by which clients migrate from their legacy systems onto the new single platform has been especially challenging, says Mr Combes. “With regard to the single platform, we can only deliver it in phases because of the systemic risks. We cannot deliver such a massive project with a big bang, so we have to migrate clients to the single platform in the same way we migrated clients onto the single settlement engine between 2006 and 2007, market by market.”

In line with the European Commission’s Giovannini Group recommendations, the second part of Euroclear’s programme aims to advance market-practice harmonisation. “It is equally important to harmonise market practices, not only to reduce our own costs for development and maintenance through the reduction of operational complexities and therefore our running costs, but also, more importantly, for our customers,” says Mr Combes. Euroclear believes the consolidation and harmonisation programmes, including the integration of the Finnish and Swedish markets, will deliver back office savings of €350m ($544.6m) a year to its clients.

Improving resilience

Meanwhile, the bank has channelled its efforts into building out world-class business continuity, having recently launched a third major European data centre. “We were faced with two choices: we could either consolidate systems within the same resilience framework as before, or we can take advantage of this change to increase and improve levels of resilience,” says Mr Combes. Few organisations operate third data centres, a move that speaks of the bank’s focus on providing high resilience.

This is particularly important given the increasing complexity and volume of securities now traded, which have strained the capacity of many market participants’ systems. “When we put in place a new system, we do not only look at the functional requirements, we also look at capacity and performance requirements,” says Mr Combes. “So, we always have a very clear view what a system needs to deliver.”

In its final phase, the Euroclear project will process all activity on its single platform, planned for completion in 2011. In the meantime, however, there is a lot to keep the group occupied.

CAREER HISTORY

2005: Deputy CEO of Euroclear Group

2001: Deputy CEO of Euroclear Bank, which was spun out of JPMorgan

1989: Based in JPMorgan’s New York office, responsible for the worldwide marketing of operational services.

1979: Project leader for development of a new Euroclear securities settlement system

1976: Joined the systems department at JPMorgan to work on banking technology and Euroclear-related developments.

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