NYSE Euronext is to launch two new clearing houses in London and Paris by late 2012, severing its existing clearing arrangement with LCH.Clearnet.
The clearing house in Paris will clear NYSE Euronexts European equities business, including cash equities and equity derivatives. According to an NYSE spokesperson Bclear, Euronexts OTC derivatives processing business, currently based in London and Amsterdam, will also move to Paris.
In London NYSE Euronext will clear all derivatives products that are non-equities, which includes interest rates, commodities, and foreign exchange products.
NYSE Euronext began developing its clearing operation in London in 2009 with the launch NYSE Liffe Clearing, a derivatives exchange and clearing platform for the London market. The exchange previously used LCH.Clearnet for clearing services, and since Q1 2009 outsourced its banking, guarantee and default management arrangements to LCH.Clearnet. NYSE Euronext will take over all responsibility for Liffe Clearing.
According to a statement released by NYSE Euronext: Under the new strategy, NYSE Euronext will move wholly away from all of its outsourced contractual arrangements with LCH.Clearnet Group Ltd’s subsidiaries in London and Paris to a situation in which NYSE Euronext has control over the clearing operations and development of its cash and derivatives businesses in Europe.
In a UBS analyst call, Michael Geltzeiler, EVP and CFO of NYSE Euronext explained the decision to launch a new equities-focused clearing house in Paris from scratch: In-sourcing and Liffe Clearing brought in $100 million of revenue for the company this is really from UK customers purchasing Liffe products. The continental customers are being reported by Clearnet, and we are not getting that revenue nor are we incurring those costs. On the continent we feel that this is a revenue stream that we would like to have and manage ourselves. We have a long history of developing the software that runs clearing, and we feel like we have been in this business before.
When asked why NYSE Euronext did not outsource their clearing to another provider in Europe, the spokesperson reiterated the desire for NYSE Euronext to control their own clearing, and to improve the situation for our customers. If we have everything in one clearing house for the equity business, then they can offset all the margins.
The spokesperson did not rule out a potential purchase of LCH.Clearnet. NYSE Euronext already owns 9% of LCH.Clearnet, and todays statement said NYSE Euronext also remains open to discussions on any potential restructuring of LCH.Clearnet.
Anything can happen, said Geltzeiler. If there is an opportunity that is in our interest and the shareholders with LCH.Clearnet that we find a way to restructure the partnership then it would be the right thing for our shareholders, ourselves and our customers.
NYSE Euronext also intends to extend clearing services to OTC markets and certain other trading platforms.
Roger Liddell, chief executive, LCH.Clearnet said: We have enjoyed a long relationship with NYSE Euronext and are looking forward to continuing to work with them until the contracts end. This is an important and exciting time for clearing with regulators and policymakers globally looking to clearing to reduce systemic risk. LCH.Clearnet is well placed to benefit from this. It has unique clearing experience and is the only clearing house with 10 years of market leading experience in clearing OTC products. We shall seek to continue to diversify our revenues as we develop new exchange and OTC initiatives.
The French regulator AMF, the Bank of France and Authorite de Controle Prudentiel recently issued a statement asking “NYSE-Euronext and LCH.Clearnet Group Ltd take all necessary measures in order to ensure the necessary continuity and stability for all cleared transactions, in a framework of sustained dialogue and cooperation.”