NYSE Euronext will start clearing its European securities and derivatives business through two new purpose-built clearing houses based in London and Paris in late 2012, subject to regulatory approval.
LCH.Clearnet in London and in Paris have been informed that NYSE Euronext’s current contractual arrangements for clearing with them will terminate accordingly at that time.
No termination fees or penalties will be payable.
The new clearing houses are part of NYSE Euronext’s plan to offer clearing services in the UK and in the Eurozone. The clearing houses will complement NYSE Euronext’s cash and derivatives trading business.
The clearing of NYSE Euronext’s European business will be re-aligned along asset class lines better to meet customers’ needs, so that the new clearing house in London will clear listed interest rate, commodities and FX products and the new clearing house in Paris will clear equities and equities derivatives products.
The new strategy builds on the first step taken with the creation of NYSE Liffe Clearing in 2009, by which NYSE Euronext’s wholly-owned subsidiary, NYSE Liffe, began clearing its own London-listed derivatives business as a self-clearing Recognised Investment Exchange, while outsourcing its banking, guarantee and default management arrangements to LCH.Clearnet.
Under the new strategy, NYSE Euronext will move wholly away from all of its outsourced contractual arrangements with LCH.Clearnet Group’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.
NYSE Euronext also intends to extend clearing services to OTC markets and certain other trading platforms on attractive and competitive commercial terms.
To build its two new clearing houses, NYSE Euronext expects to invest up to USD60m until the end of 2012, some of which will be capital expenditure. From 2013 onwards, NYSE Euronext estimates that it will realise additional revenues of at least USD100m annually from insourcing its Euronext markets securities and derivatives clearing business; and significant annual cost savings from insourcing those clearing services currently provided to NYSE Liffe by LCH.Clearnet.
While construction of the new clearing houses progresses, NYSE Euronext also remains open to discussions on any potential restructuring of LCH.Clearnet Group and/or its subsidiary companies. Should any such discussions lead to a firm conclusion that such a restructuring route, in respect of clearing activities in London and/or Paris, could offer greater benefit to NYSE Euronext’s customers and shareholders than continuing de novo construction, this matter would be thoroughly reviewed by NYSE Euronext’s board.
Duncan Niederauer (pictured), NYSE Euronext’s chief executive officer, says: “After an in-depth strategic review, we concluded that we should improve our clearing arrangements while maintaining our current regulatory relationships in Europe. This is an exciting and enterprise-transforming project that will greatly benefit our customers and further enhance the company’s presence in Europe’s two most important financial centres, London and Paris. After successfully commissioning our new mission-critical trading infrastructure, UTP, across all of our businesses globally, we are now committed to investing similarly in mission-critical post-trade infrastructure in Europe.”
Roger Liddell, chief executive of LCH.Clearnet, adds: “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 ten 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.”