The London Stock Exchange is to provide an alternative to Crest settlement for UK stocks through a link between London Clearing House and Euroclear.
The three organisations say they will be consulting with customers and users over the coming weeks and will launch the service in the second half of 2002.
Clara Furse, LSE chief executive, says the new service will increase choice and competition for settlement services, and should help reduce costs for cross-border transactions.
She comments: "We are of the firm view that a relationship with Euroclear should make access to the Exchange more attractive for a larger number of non-UK member firms. We strongly believe that trading counterparties must have a choice in settlement location for their stock exchange trades. We also want to encourage transparent and fair competition, and horizontal consolidation among service providers."
News of the deal comes days after Euroclear lost out in a two-way bid battle with Deutsche Borse for control of rival European clearing and settlement agency, Clearstream. The Frankfurt exchange is adopting an alternative 'vertically integrated' model for European trading and settlement.
The new tripartite arrangement between LSE, Euroclear and LCH will encompass trading, clearing and settlement for both UK and non-UK securities, with an initial focus on Sets trades flowing through LCH prior to settling at Euroclear.
Euroclear already has links with UK depository CrestCo for settlement transfer and established procedures to collect UK stamp duties and report such collections to the Inland Revenue.
Pierre Francotte, chief executive of Euroclear Bank, says the arrangement should be particularly attractive to firms seeking to centralise their activities across European markets. "This should also make it possible for firms to reduce their transaction costs for cross-border settlement and to generate internal back-office savings," he adds.