Euronext is to take a minority stake in LCH SA, the firm it had previously offered to buy in full from owner London Stock Exchange Group (LSEG).
LCH SA and Euronext have renewed a deal to provide derivatives clearing to the exchange and becoming a minority shareholder through a share swap.
Euronext will trade its existing stake in LCH Group, currently 2.3%, for 11.1% of LCH SA, subject to regulatory approval. Originally, Euronext had been due to buy LCH SA when LSEG put it up for sale in order to get approval for its merger with Deutsche Boerse. However, when the deal was eventually scuppered by competition authorities LSEG withdrew from the sale.
The new clearing deal means LCH SA will provide clearing of financial and commodity derivatives for a 10-year period, ensuring members have continuity and preventing them having to embark on the cost and disruption that a change of clearing house could cause.
The firms are also planning to reduce the cost of clearing for clients. In a statement, Euronext said: “Euronext and LCH SA will work together to achieve a targeted range of reduction in clearing fees of 5% to 15% with effect from January 2019, depending on each specific product and service. The precise quantum of the reduction for allocation to each derivative product line will be refined in consultation with market users. The targeted reduction in frictional costs will further improve the competitive landscape and encourage increased trading volumes.”
The shareholding also gives Euronext a pre-emption right if LCH Group decides to sell more than 50% of LCH SA, giving it right of first offer and a matching right.
Euronext said the model will provide long-term, sustainable continuity of clearing services for all clients, and is expected to complete in Q4 2017.
Stéphane Boujnah, CEO and chairman of Euronext, said: “This agreement is a long-term and sustainable solution for the clearing of our derivative markets. It also provides Euronext with a sizeable ownership position in a leading multi-asset CCP based in the Eurozone with strong positions in the fast growing fixed income and CDS businesses. Our clients will benefit from a reduction in clearing fees and the continuity of service avoids the cost and disruption associated with a migration.”