NYSE Euronext is planning to set up a new derivatives clearing house in London to consolidate all of its European derivatives clearing business, the exchange announced today.
The NYSE says that it plans to consolidate all of its European derivatives into a single derivatives clearing house, and will bring all remaining functionality currently out-sourced to LCH.Clearnet Ltd. in house. It expects that its new clearing house in London will be licensed and operational by the summer of 2013, and the clearing of all of NYSE Liffe’s London contracts will transition into the new firm at that time.
Its derivatives business traded in Amsterdam, Brussels, Lisbon and Paris, which is currently cleared with LCH.Clearnet SA in Paris, will be transferred to the new clearing house in London early in the first quarter of 2014, subject to regulatory approval, the exchange says; adding that consolidating the continental derivatives business with the London derivatives business in the same clearing house, “will release substantial capital savings for market participants, as a result of margin offsets across highly correlated products. Derivatives users will also benefit from substantial operational synergies, as a result of the single technology platform and common operating procedures.”
The NYSE Euronext expects to invest around US$85 million in the project over the next two years, and expects annualized net cost savings of around $30 million from in-sourcing the clearing services currently provided by LCH.Clearnet. And, it expects new revenue streams will accrue from 2014 from adding continental derivatives clearing and from other new post-trade business opportunities including OTC clearing.
“Our clients have long asked for a consolidation of clearing arrangements and the strength of our European derivatives business allows us to deliver meaningful benefits for them in the form of capital efficiencies and savings,” said Duncan Niederauer NYSE Euronext CEO. “Formalizing these steps now and communicating them clearly to our customers will allow them to more effectively plan their capital allocation needs and will enhance their operational stability in a highly competitive and fluid environment.”
The company indicated that it intends to give 12 months notice to LCH.Clearnet in mid-2012 ending its current outsourcing arrangements. However, it will continue to use LCH.Clearnet to clear its cash trading business, and it intends to negotiate a new long term arrangement with LCH.Clearnet SA.
LCH.Clearnet notes that the NYSE Euronext initially served a termination notice for its European derivatives business in May 2010 and, in 2011, extended its contract with LCH.Clearnet until June 2013. Today, it said it welcomes the clarification of NYSE Euronext’s intentions.
Ian Axe, CEO of LCH.Clearnet said, “LCH.Clearnet will work collaboratively with NYSE Euronext, clients, market participants and regulators to ensure a smooth transition and continuation of clearing services. We wish NYSE Euronext every success in its clearing strategy and look forward to continuing to serve NYSE Euronext as a key long term client and clearing member in cash equities.”