Central counterparties (CCPs) LCH.Clearnet and EuroCCP are set to increase prices for clearing equities at the beginning of February, blaming regulation and market conditions.
LCH.Clearnet has confirmed EquityClear prices will increase for both low- and high-volume clients, while EuroCCP fees are scheduled to rise for larger volume clients. Both firms will implement their new fee schedules on 1 February.
LCH.Clearnet’s fees for clients with an average daily volume (ADV) of up to 10,000 trades will increase from 10p to 11.5p per side. Mid-tier pricing has remained the same or dropped, with those with ADV of 10,001 to 20,000 seeing flat fees of 7p while clients with ADVs of 20,001 to 40,000 will see their fee drop from 5p to 5p.
Clients with ADVs of 40,001 or more will not face significant fee changes, though some tiers have been rebanded with a new 0.1p tier for ADVs of 100,001 to 500,000.
LCH.Clearnet is majority owned by London Stock Exchange Group and provides equity-based clearing for trades on venues including London Stock Exchange, Turquoise, SIX Swiss Exchange, BATS Chi-X Europe, Aquis and Equiduct.
London Stock Exchange bought a 60% stake in the clearing business in 2012 and its most recent financial statements show its third quarter income increased by 3%. More generally, London Stock Exchange Group’s post-trade services struggled in the nine months to 31 December 2013, with revenues down 31%.
At EuroCCP, fee bands have been revised significantly following the merger with fellow pan-European clearer EMCF. Previously, EuroCCP clearing and risk management services were divided into ADV bands of 0 to 100,000, 100,001 to 230,000 and 230,001 and above, with prices of three, one and zero euro cents respectively.
For the merged entity, the pricing tiers are as follows: 0 to 60,000, priced at 3c; 60,001 to 150,000, at 2c; 150,001 to 300,000, at 1c; 300,001 to 500,000, at 0.5c; and 500,001 and above costing 0.01c.
EuroCCP CEO Diana Chan said prices and pricing tiers had been changed as a result of EuroCCP’s merger with EMCF last year, but added that clients should not be paying any more than when they were clients of EuroCCP and EMCF individually.
“A CCP is very much a fixed-cost business. That said, we are facing incremental costs with the need to comply with European market infrastructure regulation requirements while market volume is not growing. Combining EuroCCP and EMCF eliminates one cost base and increases the efficiency of the operation. We also help clients cut 50% of settlement costs because where they needed to settle with two different CCPs, they now only need to settle with one.”
She also reiterated EuroCCP’s commitment to ensure clients would not pay more for their clearing services as a result of the combination of EMCF and EuroCCP, and said that low-volume user prices have remained static, while larger volume users have only seen their prices adjusted to take into account the much higher activity levels they have with EuroCCP since its predecessor businesses combined.
EuroCCP is jointly owned by the US-based Depository Trust and Clearing Corporation, ABN AMRO Clearing Bank, NASDAQ OMX and BATS Chi-X Europe. It provides clearing for 15 national markets and a number of multilateral trading facilities.
LCH.Clearnet was not available for comment at the time of going to press.
Chan said that the cost pressures facing CCPs as a result of regulation and low market volumes make a case for further consolidation in the industry, adding that EuroCCP’s merger with EMCF will put the group in a much stronger position to be able to continue providing low cost clearing to the market.
“Smaller CCPs will find it challenging to operate if volumes remain low. I think for the larger stock exchange groups, they might want to consider whether it makes financial sense for them to own an equities clearing business. We might see the market continue to consolidate over the next few years,” she said.
SIX Securities Services’ X-Clear, the other major provider of pan-European clearing services, is not intending to increase its pricing this year. It’s highest cost tier, for ADVs of 0 to 250,000 trades is CHF0.08, equivalent to €0.07. It provides clearing for London Stock Exchange, BATS Chi-X Europe and a number of multilateral trading facilities, broker crossing systems and OTC matching platforms.