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LCH.Clearnet eyes forex markets

16 October 2008  |  10864 views  |  0 globes - map of earth

Anglo French group LCH.Clearnet is looking into ways of providing clearing services for the lucrative foreign exchange markets, according to a Financial Times report.

LCH.Clearnet firm is reportedly conducting a feasibility study on ways of becoming involved in the clearing of the FX markets.

Roger Liddell, chief executive of LCH.Clearnet, told FT reporters the group had been looking at opportunities in the forex markets "in a more focused way for the past three months".

The FT notes that any move into the clearing of the foreign exchange markets - which are currently not cleared - would be a further sign of interest in bringing the over-the-counter (OTC) markets into a centrally cleared system in order to reduce counterparty risk.

Bank-backed body Continuous Linked Settlement (CLS) was launched in 2002 and currently settles around 55% of FX trades. But most of the remaining 45% use traditional correspondent banking arrangements that are subject to temporal and systemic risk relating to counterparty failure.

Earlier this year the Bank for International Settlements (BIS) said although there had been a major reduction in FX settlement risk, more needs to be done.

Liddell told the FT that while "a lot of the risk is taken out by CLS" there are firms looking to see whether it makes sense to have a clearing offering as well.

"I think it's distinctly possible that FX will have clearing arrangements," he said.

News of the feasibility study follows speculation that LCH.Clearnet is set to lose major business from clients such as ICE and Liffe, which are both establishing their own clearing operations in London and distancing themselves from the Anglo French clearing firm.

Yesterday ICE said it would transition its European exchange and over-the-counter (OTC) trading positions from LCH.Clearnet to its ICE Clear Europe division over the weekend of 1-2 November.

ICE initially intended to take on its own clearing in July, after receiving FSA approval in May. But shortly before the expected launch date ICE said the European clearing venture would be delayed due to technical issues associated with the transfer of traders' open interest positions from LCH.Clearnet.

ICE said the transition would occur over the weekend of 13-14 September, but had to postpone again due to the collapse of Lehman Brothers.

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