The seven investment banks behind Project Turquoise, the proposed trading platform for European equities, are planning to set up a clearing and settlement service to rival Europe's clearing houses and securities depositories.

A source close to the project said: "There is a clearing and settlement component to Turquoise. It is not well specified at the moment but it is part of the plan." The banks propose to offer, as an addition to the trading platform, bilateral net settlement. This service would lower the number of trades passed to securities depositories, such as LCH.Clearnet, Euroclear and Clearstream. The banks are also evaluating whether the central counterparty model, where participants pool money that can be drawn upon in the event of a credit default, may be applicable. The source said: "The banks are looking to introduce competition in clearing and settlement in the same way that they are challenging the stock exchanges." Turquoise, led by Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Merrill Lynch, Morgan Stanley and UBS, is proposed as a low-cost alternative to Europe's stock exchanges. One analyst said: "It makes sense for Turquoise to tackle clearing and settlement. Most exchanges have netting capabilities, so it might not have a big impact on Euroclear and Clearstream but it might hurt the central counterparties."