LCH.Clearnet Ltd (LCH.Clearnet) and London Stock Exchange are going to introduce on-Exchange CFD contract. Its the worlds first combined cash equity and Contract For Difference (CFD) order book.
Initially the Exchange will deliver Exchange Traded CFDs (ETcfds) on FTSE100 equity underlyings, trading with and alongside the underlying cash equities, with LCH.Clearnet providing the clearing which underpins the service.
ETcfds will be an exchange-traded contract that will be fungible with equity orders. All ETcfd and equity orders will be treated identically for display and matching purposes, and ETcfd orders will contribute to the price formation in the same way as equity orders. Margin to cover members net ETcfd positions will be calculated by LCH.Clearnet and combined with members equity position to ensure maximum margin efficiency.
Key function of the combined book will be the smooth handling of any mismatches that arise between ETcfd and equity orders. ETcfds will complement traditional CFD trading model bringing the benefits mentioned below:
-Standardised and on-Exchange CFD contracts – broadening access to participants that are currently unable or reluctant to trade on an over-the-counter (OTC) basis
-Risk management the introduction of LCH.Clearnet as central counterparty to CFD trading, giving full anonymity and removing exposure to market counterparties
-Enhanced liquidity driven by the creation of a single central market place for two products
-Market efficiencies delivery of multilateral netting, ETcfd v ETcfd trades and counterparty risk mitigation will together result in a more efficient CFD market
-Cost efficiencies – Both the London Stock Exchange and LCH.Clearnet will also combine equity and CFD volumes for tariff calculation purposes.
“Introducing an on-Exchange CFD contract will offer a more transparent and efficient form of CFD trading, opening up stamp-duty free access to UK equities to a wider range of users, says Clara Furse, chief executive, London Stock Exchange Group. We are looking forward to working closely with all our partners, members and with the wider market to maximise the benefits that this new product will bring.
“This launch demonstrates how innovative clearing solutions can be the catalyst for evolution in financial markets, says Roger Liddell, chief executive, LCH.Clearnet. This is a real first which has the capacity to shape the future of equity trading.
L.D.