The London Stock Exchange has signalled its intention to phase out its current UK equities clearing and settlement providers, LCH.Clearnet and Euroclear, in favour of post-trade capabilities acquired with Borsa Italiana in 2007, notably CC&G, the Italian clearing house.
Responding to a question from an analyst at Sanford Bernstein, during a briefing prior to the close period ahead of the exchange’s six-month results to 30 September 2009, CEO Xavier Rolet suggested the exchange could pursue a “two-pronged” strategy to move clearing from LCH.Clearnet to CC&G (Cassa di Compensazione e Garanzia).
“The key issues in shifting clearing are about fees, and, importantly, collateral,” said Rolet.
The first element of any migration process would be to “grow organically” the amount of collateral held by LSE members at CC&G so that both the fees and collateral terms for clearing UK equity trades via the Italian clearer would be attractive. “Cassa will be competitive on fees, but it would also provide a full netting solution,” said Rolet. He then hinted that the process could be accelerated by acquisition. “There are other things we can do to speed up the expansion of Cassa in the UK – that would not necessarily be organic.”
Rolet has previously identified the cost of settling and clearing UK equity trades through Euroclear and LCH.Clearnet as a major barrier to the exchange’s ability to reduce its charges to a level at which it can win back market share from multilateral trading facilities.
In September 2008, the LSE became the first incumbent exchange in Europe to offer member firms a choice of clearing providers when it introduced SIX x-clear, the Swiss exchange’s clearing arm, as an alternative to LCH.Clearnet. So far only UBS, already a high-volume user in Switzerland, has begun to clear UK equity trades via SIX x-clear.