European post-trade utilities LCH.Clearnet and Euroclear have said they will work together to reduce client costs through greater operational efficiencies between the firms’ respective cash securities clearing business and custody and settlement capabilities.
Despite having announced a series of price cuts this year, LCH.Clearnet, which clears cash equities for the London Stock Exchange (LSE) and NYSE Euronext among others, has come under increasing pressure to offer further savings to clients, in part due to increased interoperability between Europe’s post-trade providers since the European Commission issued its Code Of Conduct on Clearing and Settlement and equities liquidity fragmented across a wider range of venues.
LSE CEO Xavier Rolet last week outlined to investors plans to increase the opportunities for London-based banks to place more collateral with CC&G, thereby positioning the exchange’s Italian clearing house as an attractive alternative to clearing cash equities through LCH.Clearnet and Euroclear in the medium term. Rolet has previously identified the cost of settling and clearing UK equity trades as a major barrier to the exchange’s ability compete against multilateral trading facilities.
LCH.Clearnet SA, the firm’s French unit, reduced cash equity clearing fees by an average of 30% from 1 July 2009 and will cut fees for blue chip stocks to €0.05 per trade from 1 January 2010. Euroclear currently conducts technical netting of UK cash equities trades on behalf of LCH.Clearnet Ltd, but the UK clearer is reportedly assessing opportunities to insource this capability. Under a new tariff structure to be introduced by Euroclear UK & Ireland in November, the average trade-netting fee for LSE trades will fall from £0.043 to £0.018 per transaction, with most high-volume clients paying an average of £0.01 per transaction.
Joint efforts have already begun between LCH.Clearnet SA and Euroclear, which operates national central securities depositories in seven European markets, to analyse how Euroclear’s harmonised custody, corporate action and settlement processing capabilities can support the ongoing harmonisation of cash securities clearing at LCH.Clearnet.
Further collaborative efforts will be explored by the two groups for opportunities to maximise post-trade savings for users, render system changes invisible and build on existing harmonised solutions.
Roger Liddell, chief executive, LCH.Clearnet, said, “We are delighted to be working with Euroclear to find ways of increasing efficiencies and reducing costs in the European post-trade environment. As user-owned, user-governed organisations, both companies are dedicated to serving the needs of their users and maximising efficiencies for their benefit.”
The two firms also announced that Euroclear, currently LCH.Clearnet’s largest shareholder, is to redeem all the 11,712,001 shares it holds in the clearing house. The move follows a strategic decision by LCH.Clearnet to align its ownership and governance structures more closely with users of its services and exchanges with which it has a clearing relationship. Earlier this year, LCH.Clearnet was the subject of competing takeover bids by US post-trade services provider Depository Trust & Clearing Corporation and a consortium of brokers.
LCH.Clearnet, which reported a 14.1% rise in operating profit to €293.6 million for the year to 31 December 2008, also announced it is returning up to €444 million to shareholders.
“It is essential we are positioned to respond swiftly to the changing market environment by offering both lower fees and innovative services. The voluntary redemption is intended to give shareholders who will not benefit from reduced fees the opportunity to sell some or all of their shareholding in the company,” said LCH.Clearnet chairman Chris Tupker, who will step down from the role in 2010.