Chris Tupker, chairman of Euroclear, has effectively declared his organisation’s preference for Euronext over Deutsche Borse in the current battle between the two European equity trading groups to take over the London Stock Exchange. In a letter published in the London Financial Times this morning, Tupker urges the shareholders of the London Stock Exchange to ignore the “upward spiral of their share price” and to be “on red alert” against the possibility that “any of the trading, clearing and settlement functions become a monopoly in the hands of a company driven by the goal of maximising shareholder profits.”
Though Euronext is just as much a listed company as Deutsche Borse, it is hard to read this form of words as anything other than a reference to the German group, which owns both its CCP and a CSD in the shape of Clearstream. Given the ties between Euroclear and Euronext, and the importance of the settlement revenues of London Stock Exchange trades to the Brussels-based ICSD, it would be surprising if Euroclear believed any result other than a Euronext takeover was in its interests. Indeed, as Tupker adds: “Given the ability of trading platforms to influence the choice of post-trade service provider and the driving force of economies of scale in these businesses, this [a vertically integrated commercial monopoly] could well be the outcome if the winner also owns clearing and settlement functions.”
Yet some would argue that Euroclear is itself part of a complex vertically integrated trading, clearing and settlement entity with Euronext and LCH.Clearnet, whose own support for a Euronext takeover of the London Stock Exchange vindicates the truth of this observation by the Euroclear chairman. Unlike the Deutsche Borse, however, Euroclear and its clearing and trading partners have cloaked their own ambitions in the language of horizontalism and user ownership and governance. In short, they have successfully portrayed an apparent horizontal alignment as a real one, and are now seeking with some degree of success to portray an honest vertical alignment as a conspiracy against the public interest.
Yet it is obvious that the clearing and settlement revenues generated by the London Stock Exchange are as important to the CREST subsidiary of Euroclear and to LCH.Clearnet as the trading revenues are to Euronext. So the warnings against monopoly scarcely emanate from a disinterested source. In fact, in warning in his letter that the impending takeover of the London Stock Exchange “is the beginning of the end game of the consolidation of all the infrastructure of financial markets in Europe -not just the equity trading platforms” (to say nothing of his calling in aid “issuers … regulators and competition authorities” as well as the “securities firms” that own the bulk of the London Stock Exchange) Tupker acknowledges how much Euroclear has at stake in the present tussle.
What shareholders in the London Stock Exchange (and issuers, regulators and competition authorities, for that matter) should really be on “red alert” for is advice to ignore shareholder value now in favour of distant and unquantifiable benefits such as the “embedded cost of capital of European companies” and the “efficiency and competitiveness of capital markets in Europe in the future.” This is especially the case when such apparently disinterested advice comes from such a deeply interested participant with a demonstrable preference for user-owned, user-governed monopolies that have yet to deliver to users the advertised benefits of successive acquisitions.