LSE to sell clearing unit to Euronext for US$533mil

  • Business
  • Wednesday, 04 Jan 2017

LONDON: London Stock Exchange Group Plc agreed to sell its French clearing unit to Euronext NV for 510 million euros (US$533mil) in cash, putting it on course to end a 13-year combination that the company hopes will pacify competition watchdogs.

LCH.Clearnet SA’s sale requires Euronext shareholder approval and the completion of a works council consultation, according to a statement from Euronext. The deal may be completed by the end of the second quarter.

The clearing house’s sale is an attempt to smooth the way for Deutsche Boerse AG’s US$12bil takeover of London-based LSE. That deal would create Europe’s dominant operator in everything from indexes to stock markets and clearing, a vantage sought over the years by multiple chief executives.

The purchase “will diversify Euronext revenue streams and give us access to new asset classes,” chief executive officer Stephane Boujnah said in a conference call, referring to fixed income and credit-default swaps markets.

Clearing – a back-office function that acts as a firewall against defaulting traders – is a key rationale for Deutsche Boerse’s acquisition and is also the deal’s most difficult hurdle. The European Union scuttled a similar tie-up in 2012 amid concerns it could shut out rivals to the clearing market.

LSE and Deutsche Boerse are willing to sell LCH’s French clearing house because it won’t harm one of the most important aspects of their transaction: putting LSE’s mammoth swaps-clearing business under the same roof as Frankfurt’s derivatives clearinghouse, called Eurex. Doing so may make derivatives trading more efficient, but could also give the companies a worrisome grip over prices.

Euro-derivatives clearing has been targeted by French and German authorities since the UK voted in June to leave the European Union. LSE’s sale of the French unit will do little to appease the likes of French president Francois Hollande. That particular battle has focused on the US$2.7 trillion-a-day interest rate swaps market, which is primarily cleared by LCH’s London-based operations.

LSE became majority owner of LCH in 2013, around the time post-crisis regulations were coalescing to push more derivatives trading through clearing houses. The remainder of the clearing firm is owned by bank members and other exchanges. – Bloomberg

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