A study by consulting firm Oxera, commissioned by central securities depository (CSD) Euroclear UK & Ireland, claims that the London Stock Exchange’s (LSE) trading fees account for a much greater proportion of total execution costs for UK equity trades than post-trade costs for large clients, but the exchange has challenged its findings.
Of the total cost of 28.5 pence per trade for executing UK equity trades on the LSE, Oxera found that 83% (23.8 pence) was attributable to trading platform fees, 15% (4.2 pence) to clearing, settlement and netting fees paid to central counterparties (CCPs) and 2% (0.6 pence) to settlement fees paid to CSDs.
By contrast, the consultancy reported that total costs on multilateral trading facilities BATS Europe and Chi-X Europe, which both clear through pan-European CCP European Multilateral Clearing Facility and, like the LSE, settle UK equity trades through Euroclear UK & Ireland, were 7.3 pence, with 41% attributed to trading fees, 53% to CCP fees and 6% to CSD fees.
“To the extent that this report is neither up to date nor in line with client feedback, it would seem to be a rather pointless and self-indulgent exercise,” the LSE said in a prepared statement. “We will continue to take the word of our clients on this matter and will continue to promote lower costs across all parts of the trade process.”
The figures used by Oxera are designed to represent the specific costs incurred by a theoretical user with the profile of a large-volume broker using three venues and their respective post-trade providers. The costs were estimated on the exchanges’ and providers’ current pricing schedules in March 2010.
The findings counter LSE chief Xavier Rolet’s assertion last November that post-trade costs for large users made up two-thirds of the total cost of trading UK equities. Following pressure from Rolet, Euroclear cut its settlement fees to 0.9 pence from 2.2 pence per transaction at the beginning of March this year by removing the gross charge for netting trades. The exchange estimated the cut would result in £10 million of annual savings.
A spokesman for Euroclear emphasised that the report was seeking to demonstrate low settlement costs across the board. “We and our clients could not reconcile the LSE’s statements that post-trade costs represented two-thirds of the cost of an LSE transaction,” the spokesman added. “The data researched by Oxera shows that post-trade costs represent 17% and supports our belief that Euroclear UK & Ireland’s proportion of the total cost of a London Stock Exchange trade is under 5%.” He added that the cost of settling trades was almost the same across the three venues.
However, an LSE spokesman questioned the validity of comparing relative percentages of trading and post-trade costs across trading venues. “The key issue we were concerned with was to remove the gross charge for netting and that’s what happened. The point was never about exactly what percentage each client pays for trading versus post trade because it is different for each one.”
The spokesman added that the exchange continues to review its trading tariffs.