LCH.Clearnet will cut fees for many customers by as much as two-thirds and eliminate charges for high-volume equity traders amidst the possible loss of key clients and growing competition in Europe’s post-trade clearing market.
The London and Paris-based clearinghouse says that as of Oct. 1, it will offer free equity clearing for members which clear over 150,000 trades a day; those are typically high frequency traders with large volume business. The clearinghouse will also introduce discounts for members clearing over 50,000 and 75,000 trades a day. For example, members clearing about 60,000 trades a day will be charged 1 pence per trade instead of three pence per trade.
The Depository Trust & Clearing Corp., which owns European clearinghouse EuroCCP, is reportedly in talks with the European Multilateral Clearing Facility (EMCF), LCH.Clearnet’s main rival in European equities, over taking a stake. Neither DTCC, the umbrella organization for clearing and settling of U.S. securities transactions, nor EMCF would confirm the market speculation.
Both EuroCCP and EMCF are clearly looking to shore up their stronghold in the European clearing arena. Amsterdam-based EMCF is owned by ABN Amro Group, which holds a 78% stake and Nasdaq OMX, which has a 22% stake. EuroCCP services electronic trading platforms such as Turquoise, NYSE SmartPool nd NYSE Arca. EMCF clears trades on Chi-X Europe and Bats Europe, the London Stock Exchange ’s two largest rivals.
LCH.Clearnet, which clears trades for the LSE, Euronext stock markets, and plenty of derivative markets, is faced with the defection of two key clients – NYSE Euronext and the LSE. The LSE, which has blamed high post-trade clearing fees for its loss of business to alternative trading platforms, has suggested it is looking at alternatives to using LCH.Clearnet. NYSE Euronext will no longer use LCH.Clearnet as of 2012.
The LSE’s fee reductions were welcomed by Kevin Milne, director of post-trade services at the LSE. "In combination with our own ongoing tariff cuts, this move will further reduce the overall cost of trading for our major clients and make the service more compelling," Milne said.
LCH.Clearnet’s latest fee cuts aren’t the first time the clearinghouse has opted to slash its tariffs. In February, the clearinghouse announced that it had posted a net loss of $124.2 million in 2009 largely dud to fee cuts and reduced growth projections. “In cash equities we have responded to an increase in competition by reducing our fees,” said Roger Liddell, LCH.Clearnet’s former group chief executive, in a statement at that time. Due to the impact of the fee reductions on future revenues the LSE took an “impairment” charge of 393.4 million euros ($610.2 million).