UK clears LSE plan to buy LCH Clearnet

Tuesday, 18 December 2012 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Britain’s competition watchdog has given the green light to the London Stock Exchange’s planned purchase of clearing house LCH.Clearnet though questions remain about how soon the deal will complete.

In a statement on Friday, the Office of Fair Trading said the proposed tie-up would not threaten rivals through market dominance. Clearing houses sit between trading firms and ensure trades of securities such as stocks and bonds are completed and insure against losses if one side of a deal defaults.

They have taken on greater importance since the collapse of Lehman Brothers four years ago and regulators want to force more trading through such vehicles to ensure smoothly functioning markets even at times of stress. OFT clearance does not yet seal the 600 million euro ($ 785.25 million) deal, however, as the London exchange is trying to work out better terms than the 19 euros per share originally agreed in April. LSE is renegotiating terms after European authorities said they plan to impose extra capital requirements on clearing houses.

The European Securities and Markets Authority may not finalise its demands until early next year, and only then will the LSE know by how much it must renegotiate the terms of its LCH takeover.Analysts expect LCH’s capital shortfall will be less than early estimates and should come in at about 220 million euros. The LSE would only need to pay 60 per cent of that, but that would still leave it on the hook for at least 100 million euros, which its shareholders will want factored into the terms of the LCH takeover. LCH.Clearnet shareholders, who accepted an offer of 19 euros a share in April, include nearly one hundred of the world’s largest trading banks and two exchanges – the London Metal Exchange and NYSE Euronext.