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Nyse to invest $85 million in new European derivatives clearing house

28 March 2012  |  6455 views  |  0 New York Stock Exchange

Nyse Euronext is to spend $85 million on developing a new clearing house for its derivatives business in Europe, terminating an existing relationship with LCH.Clearnet.

The move follows the recent agreement by the London Stock Exchange to take a 60% controlling stake in LCH.Clearnet, and the aborted merger agreement between the US exchange and Deutsche Bourse.

"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. "Formalising 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."

He says 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 bring in house all remaining functionality currently out-sourced to LCH.Clearnet. The clearing house is expected to be fully operational by the summer of 2013. Derivatives trading in London will be shifted to the new platform in mid-2013, with European trading moving over in Q1 2014.

Nyse says the consolidation of its European 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. The use of a single clearing platform and common operating procedures is expected to result in cheaper running costs for traders executing deals on the Exchange. It will also position the Exchange to cater for new post-trade business opportunities in the over-the-counter markets.

In the cash markets, Nyse says it will negotiate a new long term arrangement with LCH.Clearnet, replacing the current arrangements which terminate in December 2013.

Says the Exchange: "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."

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