Shortly after Euronext posted its new strategic plan, which, inter alia, concerns its clearing activities, London Stock Exchange Group (LSEG) issued a comment on the plan.
In particular, LSEG noted Euronext’s clearing arrangements with LCH SA.
In outlining its plan, Euronext says it has been, until now, the only market infrastructure that does not directly manage its clearing activities for its listed derivatives markets. Since 2003, Euronext has relied on a third-party clearing house, LCH SA, for the clearing of most of its cash and derivatives trading flows on its markets, with a revenue sharing agreement.
Euronext has proposed on various occasions to take the control of LCH SA, unsuccessfully.
Today, for the first time, thanks to the acquisition of CC&G in April 2021, Euronext is the owner of a multi-asset clearing house and is thus in a position to directly manage its clearing activities to complete its value chain. Euronext is determined to directly manage the clearing of its cash and derivatives flows. As of today, the only available concrete option is the European expansion of CC&G clearing activities.
Euronext will grow CC&G into Euronext Clearing, making it Euronext’s CCP of choice for its cash equity, listed derivatives and commodities markets. Euronext will continue offering an open access CCP model for cash equity clearing.
LSEG says that LCH SA offers clearing for a range of asset classes, with a proven track record in best-in-class service and robust risk management.
LSEG explains: “As a Group we are strongly committed to LCH SA. We continue to expand and develop new products and services, reinforcing the diversified range of products cleared across asset classes”.
LCH SA’s current agreement with Euronext with regards to financial derivatives and commodity derivatives clearing services runs through to 2027. Under the terms of this agreement, Euronext has limited early termination rights, one of which is exercisable with an earliest effective date of January 2024. The provision of cash equities clearing services is subject to a 12-month notice period.
While there is still uncertainty with regards to the detail, extent and timing of any changes, the total potential impact is less than c. 1% of total LSEG revenue and is not at risk for a number of years. Euronext’s announcement has no impact on LCH SA’s RepoClear and CDSClear businesses or on SwapClear and ForexClear.
“We will continue to work closely with Euronext under our existing partnership and look forward to continuing to offer our clearing services to our global customers, who benefit from access to our multi-asset offering,” LSEG concludes.