09.07.2011
By Terry Flanagan

LSE in Talks to Buy LCH.Clearnet

The London exchange operator has entered into discussions to acquire the independent clearing house.

The London Stock Exchange Group has said that it is in discussions with the London clearing house on a possible takeover.

In a statement, the exchange said that it “can confirm that it is currently in discussions with LCH.Clearnet regarding a potential transaction. These discussions are at an early stage and there can be no certainty that any action or agreement will result.”

“This would definitely it will make the LSE a bigger player in Europe,” said Michael Wong, exchange analyst with Morningstar. “The landscape in Europe will be much more competitive. With every passing year, the European capital markets landscape looks more like the U.S., and the U.S. looks almost perfectly competitive,” he added.

“It would give them an advantage in OTC swaps,” noted Wong. “If they get into clearing, that might be good for them. If they were to take over LCH.Clearnet that would definitely be filling in a capability they currently don’t have.”

LCH.Clearnet is 83 percent owned by clients and 17 percent owned by exchanges.

The news of LSE’s discussions on a possible acquisition of the clearing house comes some two months after its bid for Canada’s TMX Group failed due to a lack of shareholder support. Industry observers noted at the time that the LSE would itself become a takeover target. If the LSE tried and failed once again to make an acquisition, that would certainly be the case.

“It might be bad for LSE management, but good for shareholders,” said Wong. The potential deal has been seen by observers to be critical for LSE chief executive officer Xavier Rolet after his failure to buy TMX earlier in the year. “Its competitive position is on quicksand over the past few years in terms of market share lost. I believe it’s lost the most share of any regional type exchange groups,” added Wong.

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