What are the implications for European market structure of LSE's bid for LCH.Clearnet.
The bid by London Stock Exchange for LCH.Clearnet, the
London-headquartered clearing house, is indicative of the winds
of change blowing through the European derivatives industry as
exchange consolidation reinforces the vertical silo clearing
LCH.Clearnet and the London Stock Exchange have been the
biggest losers from the expansion of the exchange-owned
vertical silo clearing model. Successful horizontal clearing
requires the backing of the herd and when Liffe announced it
was to sever ties with LCH and build its own clearing house,
this put pressure on the London Metal Exchange to follow suit,
which it duly did, announcing it was exploring its options in
At the same time, LCH has experienced significant pressure
on its cash equities clearing business. A vicious price war
between LCH, Euro CCP and EMCF has resulted in clearing fees
for cash equities falling. Fees from clearing cash equities
fell by 21% in 2010.
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