Euronext to cut ties with LCH and move clearing to Italian CCP following merger

Earliest date for derivatives clearing deal to end is 2024 under the 10-year deal signed in 2017, as LCH shrugs off impact of the break-up on its business.

Euronext’s chief executive has outlined plans to break away from using LCH as its clearing house for cash equities and derivatives, the latter which will break a 10-year deal signed between the two parties in 2017. 

Stephane Boujnah presented the break-up during the pan-European exchange operator’s strategic plans to 2024 where he pointed out that Euronext is now the owner of a multi-asset clearing house – CC&G – following its acquisition of Borsa Italiana, which will now become its CCP of choice for its cash equity, listed derivatives and commodities markets. 

LCH’s current agreement with Euronext with regards to financial derivatives and commodity derivatives clearing services runs through to 2027, following a renewal struck in 2017. 

The London Stock Exchange Group-owned clearing house made it clear following the announcement that Euronext “has limited early termination rights, one of which is exercisable with an earliest effective date of January 2024”. 

The provision of cash equities clearing services is subject to a 12-month notice period, which Boujnah said on the call would be served right away. 

“Euronext is determined to directly manage the clearing of its cash and derivatives flows,” he added. “As of today, the only available concrete option is the European expansion of CC&G clearing activities.”

The Euronext chief added that the relationship had been “excellent for the benefit of our clients” but that the move “allows for easier innovation than a plain client-supplier relationship” and was “just the normal consequence and natural outcome of the acquisition of the Borsa Italiana group.” 

LCH issued a response almost immediately to say: “While there is still uncertainty with regards to the detail, extent and timing of any changes, the total potential impact is less than 1% of total Group revenue and is not at risk for a number of years.

“Euronext’s announcement has no impact on LCH SA’s RepoClear and CDSClear businesses or on SwapClear and ForexClear.” 

There has been a long history between the two market infrastructure operators following a spate of mergers and acquisitions in recent years, with the standout being Euronext’s all-cash offer of €510 million to purchase LCH.Clearnet in connection with the merger of LSE and Deutsche Borse – which ultimately fell through.