Euroclear UK & Ireland, the UK’s central securities depository, has said it will reduce its trade-netting tariff from the start of next month, thereby reducing the cost of trading on the London Stock Exchange (LSE).
Under the new tariff, Euroclear’s total charges, including settlement for trading firms that trade in large volumes, will drop to 0.9 pence from 2.2 pence per transaction.
Crucially, clients will be charged per netted transaction rather than per gross transaction. The new tariff will also apply to the trades conducted on the Irish Stock Exchange.
Euroclear has come under pressure from LSE CEO Xavier Rolet to revise its tariff for trade-netting since his appointment in May last year. Unlike some other clearing service providers Europe, LCH.Clearnet, the LSE’s incumbent clearer, does not offer trade-netting capabilities. It outsources these functions to CREST, the UK central securities depository (CSD) owned by Euroclear, which passes these additional costs to clients.
“Some of the hindrances to equity turnover growth on the LSE are created by things out of our control, like the cost of clearing UK equities,” Rolet told The TRADE in Q3 last year.
According to Euroclear, the fee cuts will reduce the cost of a transaction on the London Stock Exchange to less than 5% from less than 10% currently. The CSD has also noted that after the current changes, the cost of trade netting will have declined by 90% since 2006.
“The new tariff reductions reinforce our willingness and flexibility to identify new ways to provide value at a reasonable cost for our clients,” said Yannic Weber, chief executive officer of Euroclear UK & Ireland, in a statement. “Given the long-term and constructive business relationships we have with the London Stock Exchange, LCH.Clearnet and SIX x-clear in particular, we have also taken into account the competitive pressures these business partners are currently experiencing.”
The LSE has welcomed the new tariff, estimating that its members stand to save £10 million in the next year in post-trade costs for the business they conduct on the exchange’s SETS electronic order book.
“In addition to our own ongoing tariff cuts, this move will further reduce the overall cost of trading for our major clients and level the playing field with our competitors,” said Kevin Milne, the recently-appointed director of post-trade services at the LSE. “We would like to thank Euroclear UK & Ireland for their constructive approach in working with us and our customers on this issue.”