EuroCCP chief voices concerns over LSE-DB clearing dominance

The merger between the London Stock Exchange (LSE) and Deutsche Boerse could harm competition in equities clearing in Europe, according to the CEO of EuroCCP.

Speaking to Global Custodian, Diana Chan highlighted the substantial market share the combination of LCH.Clearnet and Deutsche Boerse’s equities clearing arm would have together.

She added that it is up to regulators to look into such matters where one organisation would be so dominant.

“After the merger, the group will have access to, or control over, 95% of equities clearing in Europe. This means the group has a very significant
market power.”

“Typically, monopolies have a predictable behaviour which is why there are regulations to uphold competition whenever there may be a reduction in competition.”

Negotiations between the LSE and Deutsche Boerse began in February before both parties agreed to the £21 billion merger in March.

In a statement issued at the time of initial discussions, CEO of GMEX Hirander Misra said that a merger would combine the capabilities of Eurex and Clearstream with LSE’s equities arm to create a global powerhouse.

“Over 70% of trades in Europe are now competitively cleared by three interoperating CCP’s,” Chan said of the current state of the equities clearing space. “Considering that competitive clearing really started only five years ago, we consider this to be quite an achievement.

“Of the remaining trades, 25% are cleared by CCP’s that do not interoperate and that are either controlled or wholly owned by the LSE and Deutsche Boerse.”

Chan’s analysis also comes following the revelation that Euronext are in talks with EuroCCP to acquire a 20% stake in the equities clearer.

Lee Hodgkinson, head of markets and global sales at Euronext and CEO of Euronext London, declined to comment on the impact of the merger between LSEG and Deutsche Boerse, but said: “This is a strategic step for us into the clearing business to ensure we have sustainable clearing in cash equities in Europe.”

Chan suggested how the CCPs – potentially grouped after the LSE-Deutsche Boerse merger – could open up competition should the agreement go through.

“The major factor is that the merged group would have two exchanges that have so far not given access to third-party CCPs.

“One CCP in the LSE Group has tried to win business in the interoperable, competitive domain by giving a discount on the revenue stream of another CCP in the same group that does not interoperate and has no competition.

“The merged group with its significant market power could harm competition by extending such cross-subsidies. Opening up all the equities platforms in the merged group for clearing by third-party CCPs would help to level the playing field.”