While Project Rainbows preferred clearer remains LCH
Clearnet, despite its hesitancy in committing itself to the
start-up exchange, it has started to consider its options which
could include building its own, independent
The exchange, which is still in its embryonic stages, had asked
LCH Clearnet to provide a clearing service as it planned to
launch a spate of contracts which would rival a series of
Liffes products. LCH Clearnet has to date failed to give
Rainbow a definitive response to whether it will clear for it
as it has had to weigh up the pros and cons of sacrificing a
much needed new client for that of keeping its largest
shareholder Liffe - happy.
The clearinghouse has already held a day long board meeting and
remains undecided on its course of action.
As a result, an increasingly frustrated Rainbow has started
weighing up the possibility of turning towards an alternative
clearing venue, or creating its own.
Given the backing that Rainbow has a number of large
institutional investment banks and FCMs it has the
financial clout to back such a proposal.
There are others waiting to join Rainbow and so there is
no shortage of potential backing. We are full of options
although LCH remains our preferred choice, said a
source close to the exchange. If LCH continues to take
its time or decides it will not make itself available then we
will have to assess alternatives.
The list could contain the likes of Eurex, Clearing Corp
(C-Corp) and OMX.
Eurex has been a name thrown about, but I dont see
that as a true runner. OMX would be on the list, but not at the
top. And C-Corp would also have to be considered, the
It was previously suspected that the forces behind Rainbow had
contacted OMX to provide front-end technology. A second source
said that getting the company to act as front and back supplier
would ultimately kill two birds with one stone.
OMX provides clearing for Londons EDX, Sydney Futures
Exchange and NordPool.
OMX declined to comment over suggestions it has been approached
to supply either front-end technology or a clearing service.
Eurex has continually refused to comment on the matter.
Liffe and LCH Clearnet meanwhile have both refused to comment
on the latest in the long line of reports speculating that
Liffe could look to clear its own trading. It has long been
suggested that Liffe could look to scale back its business with
LCH Clearnet. This was strengthened after it sold back the
majority of its stake in the clearinghouse.
By the end of 2008, Liffe will hold a 5% stake in LCH Clearnet,
following a repurchase agreement whereby LCH Clearnet agreed to
repurchase over 26m ordinary shares held by Euronext Liffe at
The reduction of the exchanges shareholding in LCH
Clearnet has only added to the speculation that it could look
to build its own clearinghouse.
This would also follow in the footsteps of Eurex and more
recently ICE Futures. Eurex has for a long time cleared its own
trades while ICE Futures announced that it was terminating its
contract with LCH Clearnet in 12 months last July to start
clearing for itself after purchasing New York Board of Trade
and its internal clearing service some six months earlier.
The Rainbow source said that it would be less likely that Liffe
tries to build its own clearinghouse especially in light of
member discontent seen at ICEs efforts.
I think by doing that it would be doing as Liffe is,
which has not gone down too well in some quarters. I think
Liffe is more likely to strike a deal which would exclude
others beiung cleared, such as Rainbow. If that becomes the
case it would certainly be deemed as anti-competitive and we
would need to down another route Office of Fair Trading.
Or even Brussels, he said.
A second market participant said that the exchange should focus
on closer matters at hand.
"In my opinion, Liffe should not so much concentrate on
replacing a clearing system which works perfectly adequately
but look to improve and expand its product offering."