The London Stock Exchange has launched a central counterparty (CCP) service for transactions conducted over the Sets electronic order book.
The central counterparty stands as an intermediary between buyers and sellers of securites. The service offers London securities markets the full advantages of post-trade anonymity, a key requirement in reducing market impact costs for large institutions, and protection from the risk of counterparty default.
After Euronext, LSE becomes only the second European exchange to offer a central counterparty for trading. The development, a joint initiative with the London Clearing House and CrestCo, is expected to provide the Exchange with a clear advantage over its continental competitors.
In the first phase commencing today, LCH settles each trade with market participants on an 'as dealt' basis. A further phase of the service will see the introduction of optional netting, planned for early 2002, which is expected to increase operational efficiencies and cost savings for users.
Clara Furse, chief executive of the London Stock Exchange says: "This central counterparty is good news for London and it is good news for our customers. It highlights how London-based organisations can work constructively to meet market needs, and in so doing, deliver world class services. By encouraging greater use of Sets, this service will lead to more effective price formation, to the benefit of the market as a whole."
LCH members will be charged £0.20 for each side of an equity trade submitted to the CCP, irrespective of the value of the transaction.
Iain Saville, chief executive of CrestCo, comments: "We believe that the CCP model and tariff sets the standard in Europe for equity clearing. The infrastructure is flexible enough to take feeds from a variety of trading platforms."
LCH and CrestCo intend to re-use the infrastructure for the Irish Stock Exchange and virt-x this year.