London Stock Exchange and OM in OTC derivatives venture

London Stock Exchange and OM in OTC derivatives venture

The London Stock Exchange is teaming with Swedish technology firm and stockmarket operator OM to develop a new international equity derivatives business, EDX London.

The new venture will be built around the Scandinavian equity derivatives business of OM’s London subsidiary, OM London Exchange and will use the Swedish firm's Click Exchange and Secur clearing technology platform. Under the agreement, EDX London - in which the LSE will hold a 76% controlling interest and OM 24% - will pay OM £24 million to acquire the business of OM London Exchange.

Approximately 30 OM London Exchange staff will transfer to the new business, which will be managed by Marc Bailey, the LSE's director of business development.

Part of EDX London’s initial focus will be on the development, in conjunction with London Clearing House (LCH), of an over-the-counter (OTC) equity derivatives trade confirmation and clearing service for wholesale market participants. This is expected to reduce the cost and risk of conducting OTC business and is a facility not currently available for the growing OTC equity derivatives market in London.

EDX London will join a broad trading community, comprising the existing memberships of Stockholmsbörsen, London Stock Exchange and the Scandinavian exchanges that are already linked to OM London Exchange. In addition to OM London Exchange's 84 member firms, London Stock Exchange’s 292 member firms will be provided with access to EDX London.

Clara Furse, chief executive of the London Stock Exchange, says the new initiative represents an important business opportunity for the Exchange: "In collaboration with OM and LCH, we will be providing the growing equity derivatives markets in London with new products and services, which will reduce risk and cost."

In the longer term, London Stock Exchange and OM see opportunities to increase trading through EDX London in a broader range of order book traded equity derivatives and to provide for operational synergies between cash and derivatives markets.

OM London Exchange, Stockholmsbörsen, Copenhagen Stock Exchange and Oslo Börs have established a linked distribution network operated on Click - Linked Exchange Clearing (LEC). EDX London aims to expand the LEC concept further to reach a broader range of customers through other collaborating exchanges.

Subject to approval as a Recognised Investment Exchange by the Financial Services Authority, EDX London intends to begin trading in the second quarter of 2003.

Separately, an agreement has been reached for London Stock Exchange to use OM’s Click technology to extend the growth of its recently launched covered warrants market.

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