NYSE Euronext has outlined its European clearing strategy and implementation plan, detailing the steps that will be taken to leverage its NYSE Liffe derivatives clearing platform to consolidate all of its European derivatives into a single derivatives clearing house, and delivering significant operational and margin efficiencies for clients.
“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,” says Duncan Niederauer (pictured), 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.”
NYSE Euronext detailed the following steps:
NYSE will build on the recent investments made in NYSE Liffe Clearing, the Central Counterparty to all trades conducted on the NYSE Liffe market in London, and will now complete the project to bring in house all remaining functionality currently out-sourced to LCH.Clearnet Ltd.
NYSE Euronext expects the fully self-sufficient Recognised Clearing House (RCH) in London to be completed, licensed and operational by the summer of 2013. The clearing of all of NYSE Liffe’s London contracts will transition into the new RCH at that time.
Accordingly, the company intends to give 12 months termination notice to LCH.Clearnet Ltd. in mid- 2012 with respect to its current outsourcing arrangements with LCH.Clearnet Ltd. for banking, guarantee and default management.
Clearing for NYSE Euronext’s derivatives business traded in Amsterdam, Brussels, Lisbon and Paris, currently cleared with LCH.Clearnet SA in Paris, will be transferred to the new RCH in London early in the first quarter of 2014, subject to regulatory approval and finalisation of precise timings with LCH Clearnet SA. No change will be made to the trading of continental derivatives, which will continue to be executed on NYSE Euronext markets in Amsterdam, Brussels, Lisbon and Paris.
The aggregation of 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.
In completing the European clearing development, NYSE Euronext expects to invest around US$85m over the next two years, of which approximately 70% will be in the form of capital expenditure. This investment will realise significant annualised net cost savings of around $30m from in-sourcing those clearing services currently provided to NYSE Liffe by LCH.Clearnet Ltd. In addition, new revenue streams will accrue from 2014 from NYSE Euronext continental derivatives clearing and from other new post-trade business opportunities including OTC clearing.
With respect to the clearing of NYSE Euronext’s regulated cash markets, NYSE Euronext intends to negotiate a new long term arrangement with LCH.Clearnet SA, preserving and strengthening the vital role played by Paris in the European financial markets. Subject to appropriate agreement on commercial and governance terms, the new agreement would replace the current arrangements which terminate in December 2013. Entering into a new contractual arrangement with LCH.Clearnet SA answers the strong requirement from clients that cash markets clearing is performed under a horizontal model, with the potential to allow for more consolidation and the attached economies of scale, in a highly competitive environment.