In a statement put out this afternoon, Martin
Abbott, chief executive of the LME, said: "The
LME’s decision to examine self-clearing is driven
by strategic considerations arising from the ability of an
exchange to manage and develop its own clearing services in a
world where the horizontal clearing model is being steadily
"In addition it should be noted that we believe
selfclearing would also be accretive to earnings at the
LCH.Clearnet, of which the LME owns a small
shareholding, said that it has not received notice of a
Ian Axe, chief executive of LCH.Clearnet said: "We
value our relationship with the LME and shall continue to
provide the LME and its members with an excellent service and
the benefit of our unique experience in clearing for this
complex market - we are a leader in commodities clearing
"Market participants tell us they are looking for
proven, efficient and consolidated clearing offerings.
LCH.Clearnet is best placed to continue to deliver this."
The news is a further blow to LCH.Clearnet, which
lost the contract to clear ICE ECX carbon credits in November
2008. Last year, over 120m contracts were traded on the LME
with a notional value of $11.6tr.
LCH.Clearnet is battling against a trend towards
exchange-owned clearing models, where the exchange controls its
clearing house in a "vertical silo" model. Exchanges favour the
model as it increases profits and enables them to harness
synergies as well as increasing the speed of new product
Critics claim that the model reduce competition
shutting rival exchanges and rival clearing houses out of the
Last May, NYSE Liffe announced plans to bolster
trades cleared through its Liffe Clear clearing house, moving
away from LCH.Clearnet, its longstanding clearing house, adding
that it would build a new clearing house in Paris for equities
by the end of 2012.
In addition, it was rumoured that the London Stock
Exchange was ready to expand into clearing, severing ties with
LCH.Clearnet. However, these rumours were quietened when the
stock exchange said last month that it would clear its new FTSE
100 future contracts through the clearing house.
However, LCH.Clearnet has won recent success
internationally with recent wins in Hong Kong, where it will
clear all trades on the Hong Kong Mercantile
Exchange’s new electronic platform and in
Australia where it announced a deal to clear for the FEX
Derivatives Exchange last month.
The exchange may also receive a boost from the
regulators. Last month, the EU antitrust commissioner Joaquin
Almunia expressed concern over the expansion of the vertical
silo model in the event of merger between NYSE Euronext and
For more on the issue of vertical silo clearing,
see this month’s FOW, out this week.