DERIVATIVES-Euronext agrees clearing terms with ICE after LCH SA bid fails
By Helen Bartholomew
LONDON, April 3 (IFR) - Pan-European stock exchange Euronext, has signed a binding agreement of terms with ICE Clear Netherlands for the provision of derivatives and commodities clearing services.
The deal, which is expected to be formalised in the coming weeks, comes days after Euronext's attempts to gain control of LCH.Clearnet SA were thwarted. The agreement will see the exchange sever ties with the Paris-based clearing firm for the purpose of derivatives clearing when an agreement with LCH comes to an end in December 2018.
Euronext was due to take control of LCH's French clearing arm for €510m, contingent on the successful US$14bn acquisition of LCH's parent, London Stock Exchange Group, by Deutsche Boerse.
A merger between the two exchange giants was blocked by EU antitrust commissioners last week on the grounds that it would created a monopoly in fixed income markets.
Under the new agreement, customers would begin to migrate to the ICE CCP during the second half of 2018, ahead of the expiration of an existing agreement with LCH.Clearnet SA.
The agreement with ICE Clear Netherlands, which covers clearing for financial and commodity derivatives over a 10-year period, will see Euronext make an upfront investment of €10m in the clearing firm. Euronext will also appoint one representative to the CCP's risk committee as well as chairing a product committee dedicated to the exchange's clearing service.
According to Euronext, the deal will deliver a 15% reduction in client costs through lower headline clearing fees, treasury management fees and further capital efficiencies.
Clearing operations will be run from Amsterdam, while a new asset financing, inventory management and physical delivery platform for commodities will be built by Euronext and operated from Paris.
For cash equity markets, Euronext has launched its own Preferred Clearing service offering trading participants a choice of central counterparties from Clearnet and EuroCCP, in which it holds a 20% equity stake.
Stephane Boujnah, Euronext CEO and chairman of the managing board, said the exchange remained a willing buyer of LCH's Paris-based clearing business at the agreed terms, irrespective of the merger's demise.
"Euronext has reaffirmed to both LSE and LCH Group its willingness to proceed with the acquisition of Clearnet for €510m, and Euronext continues to remain a willing buyer of Clearnet," said Boujnah in a statement. "In the absence of obtaining an agreement to complete this acquisition, Euronext is fully committed to securing the best long-term solution for its post-trade activities, in the interests of clients and shareholders." (Reporting by Helen Bartholomew)
