23 Feb 2009, Alastair Marsh, Risk magazine
A spokesman for LSE said heightened market turbulence during recent months had forced up the cost of post-trade services, while the value of equities has plummeted. With clearing costs calculated per trade, and trading volumes at record highs as a result of extreme volatility, clearing has become very expensive, he said.
While declining to say whether LSE will officially join the consortium, the spokesman confirmed the exchange is watching developments closely. An ownership stake in LCH.Clearnet, which clears the majority of business conducted on LSE, could potentially reduce the cost of clearing for exchange members.
At present, the consortium consists primarily of big name players in the over-the-counter derivatives market which want to extend their influence in the clearing space as regulators push for central clearing of credit derivatives. Deutsche Bank, BNP Paribas, Société Générale, UBS, JP Morgan, HSBC, Royal Bank of Scotland, interdealer broker Icap, and a few other significant firms make up the consortium. Were LSE to join the consortium, it would become a multi-asset class group.
Whatever the final composition of the consortium, it will have to move fast to snatch LCH.Clearnet from the hands of the US clearing firm Depository Trust & Clearing Corporation (DTCC), which is due to acquire the London-based clearer by March 15 for €739 million, unless the consortium makes a counter-bid. LCH.Clearnet today confirmed that the due diligence on the DTCC deal is continuing.