Launch of a Central Counterparty for securities traded on the order book oft he Irish Stock Exchange

Media Release by the Irish Stock Exchange, Deutsche Börse and CRESTCo Ltd

A key new development for the trading of Irish equities was launched on 5th December 2005 by the Irish Stock Exchange (ISE) in partnership with Deutsche Börse (DBAG) and CRESTCo Limited, part of the Euroclear group. The Central Counterparty (CCP) for securities traded on the order book of the ISE is the culmination of a joint initiative which commenced in February of this year.

Experience in other markets internationally has shown that CCP arrangements enhance liquidity for investors, reduce risks (such as counterparty credit risk) for participants in the market and provide increased efficiencies in post-trade processing and treasury management. In particular, post-trade anonymity means that all order-book transactions remain anonymous, even during settlement.

The ISE and its partners have delivered an efficient and cost effective CCP service for the Irish market. To this end, the existing market infrastructure is being utilised as much as possible in order to minimise operational and cost impacts on market participants. Deutsche Börse has been hosting the ISE’s electronic trading system, ISE Xetra, since 2000. CRESTCo is the central securities depository for Irish and UK equities, and has provided settlement services to the Irish equity market since 1996.

Deutsche Börse, through its subsidiary Eurex Clearing (ECAG), now functions as the counterparty for all ISE Xetra order-book transactions and each execution confirmation indicates Eurex Clearing as the buyer to every seller and as the seller to every buyer. Eurex Clearing, which offers the full CCP services for the Frankfurt Stock Exchange (FWB), and the world’s leading derivatives exchange Eurex perform risk management for transactions in the ISE Xetra electronic order book. The clearing and settlement services offered by CRESTCo are similar to those currently supplied by it for both London Stock Exchange and virt-x trades.

With the introduction of the CCP there are now four entities with significant international experience offering clearing services in the Irish market. The four entities which have become clearing members of the Irish Stock Exchange are: Pershing Securities Limited, Man Financial Limited, BNP Paribas Securities Services SA and KAS Bank NV.

While the introduction of the CCP for the Irish market builds upon existing infrastructure and expertise, a number of necessary legislative amendments in relation to the Irish Uncertificated Securities Regulations (USRs) and procedural changes in relation to Stamp Duty were facilitated by the Department of Enterprise, Trade and Employment (DETE) and the Irish Revenue.

The Irish Stock Exchange’s Director of Trading and Regulation, Brian Healy, commented: “The partnerships with Deutsche Börse and CRESTCo have served the Irish equity market well, specifically with strong and sustained growth in trading volumes, increased international participation in the market, and the provision of an efficient and cost-effective market infrastructure. The launch of a central counterparty for the Irish equity market is a further major development of our market infrastructure and positions the market well for further sustained growth. In particular, the introduction of post-trade anonymity will further enhance price formation.”

Rudolf Ferscha, member of the Executive Board of Deutsche Börse said: “We are pleased to expand our business relationship with the ISE beyond the insourcing of the ISE Xetra trading platform to also include clearing services. We are happy to contribute to this significant further enhancement to the Irish equity market.”

Tim May, Chief Executive Officer, CRESTCo, commented: “As a user-owned and user-governed service provider, our top priority is to always respond to our clients’ needs. The development of a CCP for the Irish market is a prime example of this commitment, and we look forward to continuing our collaboration with the ISE and Eurex to ensure the new service is a complete success.”

Background Information:

• A central counterparty (CCP) is a well capitalised entity that becomes buyer to every sale and seller to every buy for eligible trades in a particular market.
• The CCP for the Irish market is Eurex Clearing AG, a subsidiary of Deutsche Börse.
• Only trades executed on the ISE Xetra order book in Irish securities and Exchange Traded Funds (ETFs) will be eligible for the CCP.
• A CCP introduces post-trade anonymity because the member firm submitting an order will be unaware of the identity of the counterparty on the other side of the trade as all trades will be settled against the CCP. This has repeatedly been shown in other markets served by a CCP to enhance liquidity in those markets (these include the UK and German markets in recent years).
• A CCP also delivers reduced counterparty risk as participants have reduced exposure to counterparty default as the CCP is effectively guaranteeing the settlement of all eligible trades. It also provides opportunities to increase the efficiency of market participants’ post-trade processing of transactions.

A key new development for the trading of Irish equities was launched on 5th December 2005 by the Irish Stock Exchange (ISE) in partnership with Deutsche Börse (DBAG) and CRESTCo Limited, part of the Euroclear group. The Central Counterparty (CCP) for securities traded on the order book of the ISE is the culmination of a joint initiative which commenced in February of this year.

Experience in other markets internationally has shown that CCP arrangements enhance liquidity for investors, reduce risks (such as counterparty credit risk) for participants in the market and provide increased efficiencies in post-trade processing and treasury management. In particular, post-trade anonymity means that all order-book transactions remain anonymous, even during settlement.

The ISE and its partners have delivered an efficient and cost effective CCP service for the Irish market. To this end, the existing market infrastructure is being utilised as much as possible in order to minimise operational and cost impacts on market participants. Deutsche Börse has been hosting the ISE’s electronic trading system, ISE Xetra, since 2000. CRESTCo is the central securities depository for Irish and UK equities, and has provided settlement services to the Irish equity market since 1996.

Deutsche Börse, through its subsidiary Eurex Clearing (ECAG), now functions as the counterparty for all ISE Xetra order-book transactions and each execution confirmation indicates Eurex Clearing as the buyer to every seller and as the seller to every buyer. Eurex Clearing, which offers the full CCP services for the Frankfurt Stock Exchange (FWB), and the world’s leading derivatives exchange Eurex perform risk management for transactions in the ISE Xetra electronic order book. The clearing and settlement services offered by CRESTCo are similar to those currently supplied by it for both London Stock Exchange and virt-x trades.

With the introduction of the CCP there are now four entities with significant international experience offering clearing services in the Irish market. The four entities which have become clearing members of the Irish Stock Exchange are: Pershing Securities Limited, Man Financial Limited, BNP Paribas Securities Services SA and KAS Bank NV.

While the introduction of the CCP for the Irish market builds upon existing infrastructure and expertise, a number of necessary legislative amendments in relation to the Irish Uncertificated Securities Regulations (USRs) and procedural changes in relation to Stamp Duty were facilitated by the Department of Enterprise, Trade and Employment (DETE) and the Irish Revenue.

The Irish Stock Exchange’s Director of Trading and Regulation, Brian Healy, commented: “The partnerships with Deutsche Börse and CRESTCo have served the Irish equity market well, specifically with strong and sustained growth in trading volumes, increased international participation in the market, and the provision of an efficient and cost-effective market infrastructure. The launch of a central counterparty for the Irish equity market is a further major development of our market infrastructure and positions the market well for further sustained growth. In particular, the introduction of post-trade anonymity will further enhance price formation.”

Rudolf Ferscha, member of the Executive Board of Deutsche Börse said: “We are pleased to expand our business relationship with the ISE beyond the insourcing of the ISE Xetra trading platform to also include clearing services. We are happy to contribute to this significant further enhancement to the Irish equity market.”

Tim May, Chief Executive Officer, CRESTCo, commented: “As a user-owned and user-governed service provider, our top priority is to always respond to our clients’ needs. The development of a CCP for the Irish market is a prime example of this commitment, and we look forward to continuing our collaboration with the ISE and Eurex to ensure the new service is a complete success.”

Background Information:

• A central counterparty (CCP) is a well capitalised entity that becomes buyer to every sale and seller to every buy for eligible trades in a particular market.
• The CCP for the Irish market is Eurex Clearing AG, a subsidiary of Deutsche Börse.
• Only trades executed on the ISE Xetra order book in Irish securities and Exchange Traded Funds (ETFs) will be eligible for the CCP.
• A CCP introduces post-trade anonymity because the member firm submitting an order will be unaware of the identity of the counterparty on the other side of the trade as all trades will be settled against the CCP. This has repeatedly been shown in other markets served by a CCP to enhance liquidity in those markets (these include the UK and German markets in recent years).
• A CCP also delivers reduced counterparty risk as participants have reduced exposure to counterparty default as the CCP is effectively guaranteeing the settlement of all eligible trades. It also provides opportunities to increase the efficiency of market participants’ post-trade processing of transactions.