Depository Trust & Clearing Corp and LCH.Clearnet set to merge

The Depository Trust and Clearing Corporation is to buy London’s LCH.Clearnet for EUR739 million (EUR10 a share) as part of its effort to create the world’s leading clearing house. The US-based institution has signed a non-binding agreement with London’s LCH.Clearnet but definitive terms are not expected until the new year. The merged entity would operate a user-owned, user-governed model with the latter moving to an ‘at-cost’ based structure comparable to DTCC’s utility model within three years. The move will accelerate the fee-reduction and consolidation trend evident in the settlement space under a raft of transformational pressures, including the EU’s Code of Conduct right through to the Target2Securities (T2S) system. One of the other major players in the arena, Euroclear, is already taking over the Nordic Central Securities Depository and moving towards a Single Platform (see story below) in response to these pressures

Euroclear, currently the largest shareholder in LCH.Clearnet with 15.8 per cent of the company, intends to support the proposed LCH/DTCC merger in principle and remain a shareholder in the new LCH.Clearnet HoldCo firm, cementing a strong partnership in European post-trade solutions. Under the terms of the deal, DTCC’s existing European subsidiary EuroCCP, which settles trades on the new Turquoise execution venue, will be assimilated into the new merged company. The combined group is expected to make significant cost savings in IT, more efficient collateral management, and from economies-of-scale, with synergy savings perhaps amounting to seven or eight per cent of the merged entity’s operating expenses.

Roger Lidell, will be the CEO of the enlarged LCH.Clearnet HoldCo and DTCC’s Donald Donahue will take the chair. Commenting on the move, Donahue said: “By combining our complementary skills, we expect our customers will not only see cost savings in the clearance and settlement of the many securities and instruments that we already service, but also greater access to a more diverse range of product offerings and support of emerging asset classes.” A good example of this, he added, would be the closer ties between Swapclear’s support of interest rate derivatives and Deriv/SERV’s capabilities in credit default swaps.

“The critical role of clearing houses has been highlighted by recent events,” says Chris Tupker, the present chairman of LCH.Clearnet. “The merger of our companies will give us scale and enable users to benefit from a broader geographic footprint."

more breaking news