(Removes reference to BATS Chi-X Europe in ninth paragraph
following clarification from company)
* Combined group would have about a third of the market
* Move follows LSE taking controlling stake in LCH.Clearnet
By Huw Jones
LONDON, March 14 Two European clearing houses,
whose services underpin share trading, will merge to better cope
with tougher competition and provide the fee cuts users demand
as volumes dwindle in a sluggish economy.
EMCF and EuroCCP, which announced the deal on Thursday,
would have a combined market share of around 35 percent in
clearing on exchange trades, according to calculations based on
Federation of European Securities Exchanges industry figures.
A central counterparty or clearing houses stands between the
two sides of a trade, backed by a default fund to complete the
trade if one side of the deal goes bust.
The combined group will be tougher competition for rivals
such as Eurex Clearing, part of Deutsche Boerse, and
LCH.Clearnet, in which the London Stock Exchange is
buying a controlling stake.
"The new CCP will lead the way in encouraging greater
competition between all cash equity clearing houses while
driving down costs," EuroCCP CEO Diana Chan, who will head the
merged company, said in a statement that gave no figures on the
The combined entity will take the EuroCCP name and will have
its headquarters in Amsterdam, where EMCF is based. Jan Booij,
currently head of EMCF, will be chief operating officer after a
deal that still needs the green light from regulators.
Users will benefit from "substantial settlement cost
savings", reduced collateral obligations and cheaper
connectivity fees, the statement added.
Analysts said more consolidation in clearing was inevitable
in order to achieve economies of scale, as market participants
rethink business models because of tougher regulation and
volumes are thinned as a slow economy dampens trading.
EuroCCP, owned by the U.S. Depository Trust and Clearing
Corporation, has suffered a string of annual pretax losses.
EMCF, owned by Dutch-based ABN AMRO and the Nasdaq OMX
exchange, saw income fall sharply last year, hit by new
rules allowing competition among clearers.
"In light of the fall in volumes in Europe, I think all
market participants are looking at their role in the marketplace
and (trying to) establish how they can survive," said Rebecca
Healey of consultancy TABB Group. "You are going to see more of
the same. It's efficiencies of scale people are going to have to
Axel Pierron, an analyst at consultancy Celent, noted the
European Union wants streamlined market infrastructure for
clearing and for settlement, the final leg in a trade where cash
is exchanged for ownership.
"More will happen in the post-trading industry in Europe,
not only around the issue of scale and declining volumes, but
also around regulation," Pierron said.
The consolidation in share clearing contrasts with a growing
fight among incumbents and new entrants to clear derivatives
transactions, seen as a key moneyspinner in coming years.
The European Central Bank is building a single securities
settlement platform for the euro zone.
(Editing by David Holmes)