(Re-writes first paragraph, adds shares, background, analyst
By Chris Vellacott
LONDON Dec 14 Britain's competition watchdog
has cleared the London Stock Exchange's planned purchase
of clearing house LCH.Clearnet as both parties hammer out new
deal terms to reflect rising capital requirements.
The Office of Fair Trading on Friday gave its unconditional
approval, clearing what was viewed as the biggest regulatory
hurdle to the proposed 600 million euro ($785 million) tie-up.
The timing of the deal is still unclear, however, as both
parties are back in talks over terms to reflect higher capital
requirements being imposed on exchanges by European regulators
overhauling the financial system after the banking
LSE shares moved more than 4 percent higher, which analysts
attributed to investors being reassured that discussions were
continuing over terms.
"Maybe people believe for some reason those discussions are
going better than expected," said Mark Thomas, analyst at Edison
Clearing houses sit between trading firms and ensure trades
of securities such as stocks and bonds are completed, holding
cash to refund firms left out of pocket by a counterparty
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.
The LSE said on Friday it was still in discussions over
"potential changes to the commercial terms of the transaction"
on account of new recommendations from European regulators.
A source close to LCH.Clearnet said the talks were at a
Under the deal terms agreed in April, the LSE would buy up
to 60 percent of the clearing house for 19 euros per share.
"I think both parties want the deal to go through so
something will be arranged ... My guess is that the LSE will get
something but probably not the full amount of the additional
cost that they'll have to bear," said James Hamilton, an analyst
at Numis Securities.
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
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 percent 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.Clearnet shareholders include nearly 100 of the world's
largest trading banks and two exchanges, the London Metal
Exchange and NYSE Euronext.
LSE shares were up 4.5 percent at 1,055p by 1521 GMT, after
rising as high as 1,061p, their highest since late September.
($1 = 0.7641 euro)
(Editing by Hans-Juergen Peters and David Holmes)