The London Stock Exchange Group (LSE) and Anglo-French clearing house, LCH.Clearnet, have confirmed they have entered into exclusive discussions.
The news comes a day after a major merger contender threw in the towel, citing a lack of support from the target's board.
“LCH.Clearnet confirms that it has entered into exclusive discussions with London Stock Exchange Group regarding a possible transaction,” LCH said in a brief press statement today. “There can be no certainty that the discussions will result in any transaction.”
“Work is focused and on-going, with a view to moving towards an agreement, though at this stage there can be no certainty that any transaction will result,” the LSE said in a separate statement.
Until yesterday, Markit, the market data firm that owns trade-reporting venue BOAT, had been seen as the major rival to an LSE bid for control of LCH.Clearnet.
LSE had reignited its interest in buying LCH.Clearnet earlier this month – barely six weeks after abandoning its bid for TMX Group, the Canadian exchange operator.
LCH.Clearnet clears equities for the LSE and for transatlantic exchange group NYSE Euronext, but has also developed clearing capabilities in a number of other asset classes, including OTC derivatives, in recent years. This is seen as a particularly attractive facet of LCH.Clearnet's business due to the Group of 20 political leaders' desire to see the majority of OTC derivatives cleared by central counterparties by the end of 2012.
As early as July, Markit had led a proposal for LCH.Clearnet, naming exchange operator NYSE Euronext as a subordinate partner in the bid.
“We unfortunately did not receive the LCH.Clearnet board support required to move ahead and seek shareholder support,” Markit said in a statement yesterday.
The company said it saw clearing as complementary to its other services and LCH.Clearnet had represented a unique opportunity to acquire an important piece of market infrastructure.
“We believe the markets would have benefited significantly from Markit's ownership of LCH.Clearnet since we would have preserved and reinforced a neutral, horizontal clearing model,” the statement continued, adding LCH.Clearnet would continue to be an important business partner of Markit and an “important client”.
“We will continue to support them and their members by providing them with the products and services they require,” Markit said.