Everyone who carries an ATM card is a beneficiary of interoperability. Without interoperability among banks, consumers would only be able to withdraw cash at an ATM installed by their own bank. The same with mobile phones – if telephone networks don’t interoperate, consumers would only be able to call others using the same network.

Investors in the equities markets are less fortunate. Although the same stock can be traded on different trading venues (i.e. stock exchanges and multilateral trading facilities), there is still no material interoperability among the central counterparties that guarantee these trades. Firms can trade where they choose but are obliged to use the CCP each trading venue has appointed. This arrangement means limited competition among CCPs and also more complexity.

Typically, a different CCP was introduced by each trading venue and this has led to the current fragmentation. The number of CCPs could still grow with new, stock exchange-specific CCPs being created. Firms that trade on different venues are obliged to connect to multiple CCPs, incurring higher cost and higher operational risks. Being required to use multiple CCPs is like having to open an account at every bank and carrying multiple ATM cards in order to have the convenience of using any ATM machine.

Interoperability is simple enough as a concept: it requires competitors to cooperate in order to provide choice and more efficient services to consumers, while still competing on quality and price.

Just like competing telephone networks have delivered better and cheaper services to consumers and led to many more cross-border telephone calls being made now than 20 years ago, interoperability and effective competition among CCPs in the equities market could have a big and positive impact on the capital market. Solving interoperability among CCPs could have the effect of multiplying the trading volumes across Europe by lowering the cost of clearing, creating more liquidity, investment activity and employment.