Three leading clearing and settlement houses in London, the US and Europe have been in talks that could lead to greater collaboration or an eventual merger, the Times reports.
No deal is finalized among the Depository Trust & Clearing Corporation in New York; LCH.Clearnet, which includes what was the London Clearing House; and Euroclear in Brussels. But observers say some sort of consolidation is inevitable, driven by a variety of factors including action from the European Union.
The focus has been on consolidation between world exchanges, including the assaults on the London Stock Exchange and on OMX, the Nordic and Baltic operator, and the merger between the New York Stock Exchange and Euronext, which operates several continental markets.
This is driving the less glamorous clearing and settlement functions together. One of the three corporations told the Times: “We do talk. We have to act with regard to what’s going on elsewhere.”
The three said say no deal has been done and any suggestion of a merger is speculation at this stage.
Other factors influencing the talks include the EU’s Code of Conduct for Clearing and Settlement, which was designed to improve the cross-border trading of securities and to increase “inter-operability” that will allow different service providers to pool their operations, and attempts by the European Central Bank to set up the so-called Target2-Securities project, a centralised platform for cross-border settlement in the eurozone.
Pressure from the EU to abolish the so-called “silo” model under which trading, clearing and settlement are kept under one roof, has also slackened off.
Silos have apparently been making a comeback, with the LSE’s purchase of Borsa Italiana, which operates under this model, and the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade. This would make it easier to bring together clearing and settlement functions.