LSE pursues competitive clearing model

LSE pursues competitive clearing model

The London Stock Exchange (LSE) has confirmed plans to allow Swiss central counterparty SIS x-clear to join LCH.Clearnet as a competitive provider of clearing services on its equity market.

The move will allow customers to choose whether to clear trades through the Swiss central counterparty or through the LSE's incumbent provider LCH.Clearnet.

The LSE says it will use X-TRM, the post-trade router of Italian central securities depository Monte Titoli, to manage the trade flows between the two competing CCPs and onward to settlement across its markets.

"The provision of two competing CCPs in the London market should continue to ensure effective price competition at the clearing layer," says the LSE in a statement.

The London exchange was approached by SIS x-clear in December 2005 with a proposal for competitive clearing. In May 2006 the UK exchange signed a letter of intent with the Swiss central counterparty to provide member firms with a choice of clearing provider for equity trades.

But in February this year LCH.Clearnet refused to allow SIS x-clear free access to the LSE's equity business despite being required to do so under the EU's voluntary code of conduct on clearing and settlement. The action was in response to barriers it is facing in Germany and Italy. LCH.Clearnet later said it would cooperate with SIS x-clear in accordance with the access and interoperability provisions of the European code of conduct.

In today's statement the UK exchange says its proposed dual clearing model for London is part of an ongoing review of post trade services across the group's markets.

In its deliberations the LSE says it is "mindful" of the code of conduct and says the voluntary programme "has achieved many favourable outcomes as a direct result of the price transparency and unbundling provisions".

The LSE says the policy goals of "more competitive pan-European offerings" appear to have been achieved, but aspects of the code relating to interoperability "raise important implementation, market efficiency and systemic risk issues".

Earlier this month it emerged that more than 80 formal applications had been made by clearing and settlement houses for interoperability and mutual access in accordance with the code of conduct, but none has yet gone live.

David Wright, director of the EC's internal markets unit, told delegates at a conference in Nice, France, that the code "has done a good part of the job" but interconnectivity still hasn't happened.

He said as soon as the interconnectivity agreements happen "then we can see real change in prices, quality and delivery".

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