Bonds News

UPDATE 2-European clearing house deal promises lower fees

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LONDON, Oct 22 (Reuters) - U.S. clearing house DTCC is to take over London-based LCH.Clearnet in a $975 million deal, creating a global clearing house and promising significant cost savings for users.

Under the non-binding terms, Depository Trust & Clearing Corporation (DTCC) will acquire all LCH.Clearnet shares, paying as much as 739 million euros ($974.7 million), mostly funded through LCH.Clearnet’s revenue for the next three years, and 34 percent of DTCC’s enlarged share capital.

For years, market participants in Europe have been waiting for consolidation of clearing houses, but eight clearing platforms across 14 major markets means Europe’s clearing fees are much higher than those in north America.

While financial firms in the U.S. pay just 0.33 euro cents per transaction for cash equity clearing, those in Europe are subjected to an average charge of 26 cents, according to a study conducted by EuroCCP, the European arm of DTCC.

DTCC and LCH.Clearnet estimate their merger will bring an annual technology saving of 50 million euros. This will allow the combined group to offer “significant cost savings in the clearance and settlement of the many securities and instruments,” said Donald Donahue, chairman and CEO of DTCC.

DTCC will sign definitive terms by Mar. 15, 2009, and the deal is expected to close in the second quarter next year.

Euroclear, currently the largest shareholder in LCH.Clearnet with 15.8 percent, intends to support the transaction in principle and remain a shareholder of LCH.Clearnet HoldCo.

EuroCCP, which provides services to alternative equity trading ventures Turquoise, backed by nine major banks, and Octopus, set up by transatlantic exchange group NYSE Euronext NYX.PANYX.N, will be folded into LCH.Clearnet.

Roger Liddell, chief executive of LCH.Clearnet said the firm will switch over to DTCC’s technology platform and move to the at-cost model following the payment to shareholders.

This means the group is likely to offer cheaper clearing fees than Eurex Clearing, owned by Deutsche Boerse DB1Gn.DE and Italian clearing house CC&G, now owned by London Stock Exchange LSE.L following its takeover of Borsa Italiana last year.

DTCC's move comes after Nasdaq OMX's NDAQ.O foray into European clearing. In mid-October, the transatlantic exchange bought a 22 percent stake in European Multilateral Clearing Facility (EMCF), the clearing arm of Fortis Bank FOR.AS, now owned by the Dutch government.

Nasdaq OMX plans to rival non-profit DTCC, which clears all equities trades in the United States, by launching clearing service under the name Nasdaq Clearing Corporation next year. (Additional reporting by Natalie Harrison and Olesya Dmitracova; Editing by Paul Bolding)