Tina Hasenpusch, CEO of CME Clearing Europe, is focused on many things as the head of the European clearing facility – regional banks, buy side participants, multiple asset clearing services and innovative ways to deliver new and valuable cost reducing services. John Lothian News spoke with her at the FIA IDX conference in London last month to get her thoughts about where CME Clearing Europe is going. Below is an edited version of our conversation.
Q: Let’s talk about where you were in 2015 and what you accomplished with the CME Clearing Europe.
A: 2015 was really important for us because it confirmed the approach to globalization and demonstrated consistent growth in volume and open interest. If you think about CME Clearing Europe as an integral part of CME Group, our mission is really three-fold. First, it’s about deepening client relationships. Regional relationships do matter, be it legal, regulatory or product driven. In addition to our 19 clearing members, today we have more than 720 client accounts that are registered with CME Clearing Europe, all of which are building our regional ecosystem in continental Europe and the UK.
Second, it’s about providing products and services that are relevant to European clients and global clients. And if you look at CME Clearing Europe, we’re five years old. In those five years, we’ve brought on five asset classes – energy, metals, ags, foreign exchange and interest rates. We clear more than 380 products, in addition to our rates offering.
The third element, for the benefit of our global clearing efforts, comes from us being an incubator for innovation within CME Group. What does that really mean? I’ll highlight a couple of examples.
On the one hand, think about asset segregation and protection – a key topic for firms worldwide but also for buy side firms here in Europe that are impacted by the MiFID and EMIR mandates. We were the first CCP to introduce enhanced asset segregation, giving clients a greater level of comfort to collateralize with non-cash collateral. This assists clearing members because it encourages clients to deposit non-cash collateral, which is also beneficial to the overall cost of clearing.
We were also the first CCP to introduce bankruptcy remoteness by offering reliance legal opinions within our fully segregated account structure, meaning offering greater certainty to a certain universe of buy side clients as well as offering reduced or zero percent risk weighting for those who are clearing members.
You’ll hear a lot of talk about collateral because it is the new frontier for innovation. We’re still the only CCP offering clearing members and clients full choice of collateral location. That means we’re connected to all the ICSDs (international central securities depository) in Europe and we’re offering all of our segregation offerings for both OTC and exchange-traded products, giving choice to clients and clearing members.
Q: As you look ahead at the rest of 2016, what are the next priorities?
A: The next couple of months, the key focus in terms of products will continue to be our energy offering and financial offering. We’ve seen a particularly encouraging upward trend in the power products and natural gas products. As we are considering the expansion of our multi-asset class offerings, we will look to leverage the authorizations we have to clear spot markets, OTC and exchange traded, cash settled as well as physically settled products. With the EMIR clearing mandate coming into play, interest rate swaps is a focus area where we see our product offering across 18 currencies as relevant to regional banks, buy side and other clients not just in Europe but in Asia.
And foreign exchange is a real key focus area. If you think about the innovation introduced by our European clearinghouse within the CME Group overall, we started with monthly contracts. We’re continuing to look into expanding the scope of our physically delivered and cash settled products. But we’re also looking into the FX space going hand-in-hand with the rates space. We’re seeing clients looking for opportunities in multiple asset classes consolidated in one clearinghouse connectivity and the benefits that come with it.
Q: Where do you see the biggest challenge ahead?
A: For CME Clearing Europe and CME Group globally, we’re looking to partner with market participants, clearing members and buy side firms to help address challenges in a different way. Right now, the focus is around the cost of clearing services and mediation. On the buy side, it is mostly around ancillary services such as reporting, which we have been providing, and also the facilitation of deploying and managing collateral across the universe. This is where, for example, our partnership with CloudMargin comes into play.
Q: Where do you see opportunity?
A: I would highlight two areas. One is partnering in the context of innovation and really see where technology can provide new solutions, reduce cost, make them more efficient, and shorten time on payments and instructions. That will be a key area for us.
We are also trying to leverage our MOU we signed with the China Construction Bank, to help develop London as a foreign center for renminbi. Today, we are connected to the CCB in London as a settlement bank, allowing us to locally clear renminbi, and that’s in the broader context of what we offer today.
It’s important that we work with third-parties to provide solutions and it’s important to innovate and demonstrate how solutions can really be leveraged in a wide range of value added services.
Q: What impact will Brexit have on CME Clearing Europe?
A: CME Clearing Europe is licensed under the existing EU regulatory framework which remains applicable in the UK for the time being. While it’s not possible to know with certainty what the long-term impact would be, we are here to continue to help market participants manage risk during these uncertain times.