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10 April 2008

FT: LCH.Clearnet criticises post-trade overhaul

LCH.Clearnet, one of Europe’s largest clearing houses, criticised efforts to implement a landmark overhaul of European post-trade services, saying the process had raised “totally unsurmountable” problems.


Europe’s clearing houses and stock exchanges are attempting to implement a “code of conduct” that Brussels brokered with exchanges, clearers and settlement systems in 2006. It envisaged that institutions make themselves “inter-operable” to promote competition and reduce post-trade costs, especially across borders.


Together with new rules from Brussels known as Mifid, which are designed to prompt more competition among trading venues, the developments amount to the biggest overhaul of Europe’s capital markets. They are aimed at creating a more efficient single market in financial services.


So far, exchanges, clearers and settlement systems have lodged 80 separate requests for access to rivals’ post-trade systems. However, there has been resistance from some operators of “vertical silos”, where an exchange owns its own clearer, because of a perceived threat to their business.


Richard Heyman, director, head of customer management at LCH.Clearnet, which clears trades for Liffe, Euronext, the London Stock Exchange and ICE Futures, said the experience of inter-operability so far was that “the playing field is not level”.


He said that while LCH.Clearnet still embraced the concept, there had been “all sorts of obstacles popping up” in its implementation effort, including “domestic and national issues” and a lack of reciprocity among rival clearers and exchanges.


“Some issues appear to be totally unsurmountable. We’ve had to say we are not going to be able to open ourselves up in the UK unless we get an element of reciprocity,” he told a derivatives conference organised by Futures and Options Week, an industry publication.


He said it had been difficult to move forward on inter-operability in some cases because divisions within exchanges were claiming they had not signed up to inter-operability, even if other parts of the business had.


Mr Heyman said there had to be “a pan European willingness to address the issues”. “The problem remains real and will be difficult to solve.”


By Jeremy Grant in London



© Graham Bishop

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