DTCC merger with LCH Clearnet

This news is just what the market needed to hear. One of the hopes for the future is that the finance industry not only recovers from the current crisis but changes its structure fundamentally to prevent any reoccurrence. The disparate nature of clearing in the international markets makes no sense and is a carry over from a bygone age. Unfortunately historical institutions are devils to replace, as they are heavily integrated within the domestic financial system and those that serve within it.

The merger of the DTCC and LCH Clearnet brings with it a quantum leap forward with the washing away of antiquated infrastructures that have burdened financial services firms in the international markets.

There will massive improvements in risk management and the ability of regulators to monitor and control stresses within the financial system. Counterparty risks will be reduced as more firms and assets will be included enabling a reduction of risk capital, although margining might increase. But is this a bad thing if it enforces more sobriety in financial services firms?

Costs should be reduced across the board and hopefully they will be passed on to the investors. The investor should also draw more confidence in the finance system as they see changes in market structure and the industry coming to terms with the aftermath of the crisis.

I highlighted in my blog in April some of the value of this merger and it now looks like the excitement of change can begin and this deal looks like the first huge step on the way back.