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Euroclear Agrees to Buy Xtrakter Off ICMA as Part of Drive to Broaden Trade Matching Service Offering

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Originally appeared in MiFID Monitor

Euroclear has continued on the acquisition trail this month by signing an agreement with the International Capital Market Association (ICMA) whereby Euroclear will acquire 100% of Xtrakter, the ICMA subsidiary, for an undisclosed cash amount. Ignace Combes, deputy CEO of Euroclear, explains that the acquisition is part of the firm’s drive to broaden its trade matching service offering with more asset classes and extended life cycle management.

Following the transaction, Xtrakter, which owns trade matching and regulatory reporting system TRAX, will become a wholly owned subsidiary of Euroclear. It will also become a sister company to the Euroclear group’s growing number of international and national central securities depositories (CSDs) and EMXCo.

“Euroclear is primarily interested in bringing STP and greater benefits to clients by streamlining post-trade processing further upstream and, as a result, reduce related operational costs and risks,” explains Combes. “The acquisition of Xtrakter also allows Euroclear to broaden its trade matching service offering with more asset classes and extended life cycle management. With Xtrakter, Euroclear will also be able to offer a more comprehensive and price competitive transaction reporting service to clients.”

Euroclear already provides transaction reporting, via Euroclear UK & Ireland, and OTC trade matching services, via ETCMS at Euroclear Bank.

Combes says that ICMA decided to dispose of the Xtrakter business following extensive discussions with and based on the unequivocal support from its committee of regional representatives. ICMA’s board then unanimously decided to propose the move to its members at its annual general meeting (AGM) in May 2008. Accordingly, the ICMA board’s proposal was approved by a vast majority of members at the AGM.

“Euroclear (and others) began serious discussions with ICMA about the purchase of Xtrakter around the time of the AGM,” says Combes.

ICMA took the decision to divest itself of its market services business because it felt the move would enable it to better focus on its core activities as a trade association, representing members’ interests and as a self-regulator of the international capital market, says Combes.

Moreover, as a result of the disposal, the funding of ICMA’s activities as a trade association and self-regulator would no longer depend on market services business activities but, rather, be exclusively based on members’ fees and contributions and therefore become fully transparent. The disposal of Xtrakter would also remove any perceived potential conflicts of interest between ICMA’s regulatory policy activities on the one hand and the market services business activities on the other.

René Karsenti, executive president of ICMA, adds: “When the association launched TRAX 20 years ago, it was in response to the clear industry need for a market-wide trade matching system. The acquisition of Xtrakter by Euroclear will allow Xtrakter to develop and enhance its market led services in the context of the many advantages and synergies available from operating as part of a group providing world class settlement and related services.”

Following the completion of the deal, which is currently pending regulatory approval, Combes indicates that Xtrakter will continue to offer its core services, including trade matching, MiFID compliant transaction reporting as well as information services (pricing and reference data). “By the end of 2009, Euroclear and Xtrakter intend to automate the flow of trade information, from trade matching at Xtrakter through to settlement at Euroclear, thereby eliminating matching duplication, reducing settlement fails, costs and risks,” he elaborates.

Kevin Milne, CEO of Xtrakter, adds: “Under our new ownership, we will maintain our strategy of delivering ongoing improved client services across all our business lines. Being part of Euroclear will enable us to drive our matching, reporting and information services products into new areas, thereby helping to support our customers reduce further their operational cost of trading.”

Combes claims that by combining the pre-settlement services and expertise of Xtrakter with Euroclear’s transaction settlement capabilities, the deal will deliver to the market a full STP service from trade matching to settlement. “The benefits of streamlining processes and eliminating matching duplication at trade and settlement level will be measured through increased efficiency and lower back office costs for clients,” he adds. “In addition, mandatory regulatory (under MiFID) reporting of transaction information can be provided seamlessly in the UK, France and the Netherlands as a result of the combined businesses.”

Euroclear expects to obtain all regulatory approvals in the first quarter 2009 and, working closely with its mutual clients, to provide the automated flow of trade information from Xtrakter to Euroclear by the end of 2009, says Combes. “We believe this acquisition will give Euroclear a competitive edge by being able to extend STP further upstream, from trade matching through to settlement, for a broader range of client transactions,” he concludes.

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