LSE digs deeper into market infrastructure with Euroclear buy

(Reuters) - London Stock Exchange said it would buy a minority stake in Euroclear, Europe’s biggest settlement house for securities, giving it a role in all parts of a transaction from trading to clearing and settlement.

FILE PHOTO: The London Stock Exchange Group offices are seen in the City of London, Britain, December 29, 2017. REUTERS/Toby Melville

LSE is paying 278.5 million euros ($318.2 million) for a minority stake of 4.92 percent in the Brussels-based settlement house, giving the exchange operator an edge after Britain leaves the European Union. Euroclear comes under the bloc’s rules.

The transaction would also deepen LSE’s influence over core market infrastructure and the firms expect a representative of LSE to join the board of Euroclear.

“LSEG’s minority investment is expected to strengthen LSEG and Euroclear’s existing operational and commercial relationship and provide further opportunities,” LSE said in a statement.

LSE said the deal would add to its earnings and be funded with existing cash and debt facilities.

After LSE and Deutsche Boerse’s fifth attempt at an Anglo-German tie up unraveled in the wake of Britain’s vote to leave the European Union, there has been speculation about what it might do next.

The Evening Standard newspaper reported this month that the LSE is interested in bidding for Norway’s Oslo Bors, already the subject of a bid by Euronext.

Analysts have said here a takeover of Euroclear by LSE would make financial sense and give European Union rivals such as Deutsche Boerse - which owns Clearstream - a run for their money. Euroclear already settles stock and bond trades for LSE.

Euroclear also settles stock and bond trades for LSE’s smaller rival Euronext, the pan-European bourse with operations in Paris, Amsterdam, Brussels and Lisbon.

Settlement refers to the final leg of a trade when legal ownership is swapped for payment, coming after trading and clearing.

The Intercontinental Exchange has also built a stake in Euroclear, and French bank Societe Generale sold a 2.05 percent stake in Euroclear to Belgian state-owned financial firm SFPI in November.

(Graphic: European Exchanges Race To Bulk Up -

LSE’s deal comes as the exchange operator has been tightening its grip on derivatives clearing in a sign of growing confidence that the threat of losing business to rival Deutsche Boerse after Brexit was receding.

In the first major move by the London exchange’s new chief executive David Schwimmer, the former Goldman Sachs banker who took the reins last year, the LSE in October increased its stake in LCH to over 80 percent.

LSE’s LCH is one of the world’s top clearing houses for derivatives, but its dominance in euro denominated transactions has led to calls for that activity to be relocated to the single currency area after Britain exits the European Union.

Euroclear looks after about 28.2 trillion euros of assets for customers or half the European settlement market.

($1 = 0.8754 euros)

($1 = 0.8751 euros)

Reporting by Noor Zainab Hussain in Bengaluru and Huw Jones in London; Editing by Saumyadeb Chakrabarty