The London Stock Exchange (LSE) has set up a central counterparty (CCP) service for clearing the 50 most liquid depositary receipts for securities in Russia, Kazakhstan, South Korea and India that are traded on its international order book.
The international order book (IOB) offers specialist investors access to international markets via depositary receipts from 46 countries. According to the LSE, introducing the CCP will mitigate counterparty risk, increase efficiency for participants and ensure post- and pre-trade anonymity. The service will be provided by LCH.Clearnet, the LSE’s incumbent clearing house.
The service will be sent automatically to LCH.Clearnet by X-TRM, the exchange’s post-trade router, which it acquired when it bought Italian stock exchange Borsa Italiana in 2007.
LCH.Clearnet will allow firms to net transactions in the same securities on the same day to reduce transaction management costs and financial exposure at settlement level.
The new CCP service will also cover the EDX London IOB service, which offers trading in single stock and index derivatives based on the FTSE Russia IOB index as well as Kazakh and Indian underlying securities traded on the IOB.
“The introduction of a clearing service is a very important stage in the evolution of the international order book, and comes at a time when the market is ever more focused on eliminating counterparty risk and enhancing operational efficiencies,” said Martin Graham, director of equity markets at the LSE, in a statement. “The launch of clearing for the international order book will increase the attractiveness of the EDX London IOB derivatives service, and through the use of the X-TRM post-trade router, is a first step in using the group’s post-trade assets to help shape the creation of a wider European trading network linked by shared technology platforms and processes.”
Trading on the LSE’s IOB has quadrupled since its launch five years ago, reaching $246.2 billion last year. The LSE claims that five new members now plan to trade on the IOB following the introduction of a CCP.