The London Stock Exchange, London Clearing House (LCH) and Euroclear today announced their joint agreement to develop straight-through settlement in Euroclear for London Stock Exchange trades cleared by LCH. The three organisations will be consulting with customers and users over the coming weeks and will launch the service in the second half of 2002.
The new service will increase choice and competition for settlement services, and should help reduce costs for cross-border transactions. It will complement the existing service already offered by CRESTCo to London Stock Exchange members.
“All three parties share a common vision for an integrated, low-cost capital market in Europe,” said Clara Furse, Chief Executive of the London Stock Exchange. “We are of the firm view that a relationship with Euroclear should make access to the Exchange more attractive for a larger number of non-UK member firms. We strongly believe that trading counterparties must have a choice in settlement location for their stock exchange trades. We also want to encourage transparent and fair competition, and horizontal consolidation among service providers.”
David Hardy, Chief Executive, LCH continued: “LCH stands for choice, and this development will provide market participants with settlement options. LCH’s ability to link Europe’s capital markets with a range of settlement providers clearly demonstrates the benefits of an independent central counterparty. We look forward to a further successful collaboration with the London Stock Exchange and Euroclear, which will deliver considerable additional benefits to market users.”
Pierre Francotte, Chief Executive of Euroclear Bank, added: “We warmly welcome the London Stock Exchange’s intention to offer its clients access to Euroclear, to complement the existing service already offered by CRESTCo to Exchange members. Euroclear’s international reach and broad range of low-cost settlement, custody and collateral management services should be particularly attractive to firms seeking to centralise their activities across European markets. This should also make it possible for firms to reduce their transaction costs for cross-border settlement and to generate internal back-office savings.”
Paul Symons, Head of Retail and Public Affairs at CRESTCo, commented: “This announcement is very similar to the model which we have been developing with virt-x; it gives the users of a trading platform the choice as to where they settle. CREST welcomes competition in all areas – in trading, in network and banking provision and of course in settlement; so we are all in favour of this general approach. In fact we are exceptionally well placed. Don Cruikshank, the Chairman of the LSE has recently said publicly that CREST costs are “an almost insignificant fraction” of the overall cost of a trade. We have the safest (pure model 1 DVP) and the fastest settlement in any major equity market in the world, as well as very low costs. Our lowest price for a netted trade (when netting comes in next year) is only 7p – at or close to USA levels. Of course, we hope that Euronext will quickly announce parallel steps to support settlement of their trades in CREST.”
The arrangement will encompass trading, clearing and settlement for both UK and non-UK securities traded on the Exchange, although it is anticipated that the agreement will initially focus on SETS trades flowing through LCH prior to settling at Euroclear. Securities transfers and realignment with CRESTCo would be a seamless process due to the very efficient link already in place between Euroclear and CRESTCo.
Euroclear will ensure the reporting of trade-settlement confirmation to the Exchange, in accordance with the Exchange’s rules. Euroclear already has procedures in place to collect UK stamp duties and report such collections to the UK Inland Revenue. It also offers UK stamp-duty relief for recognised intermediaries.