Société Générale Consolidates Cash Equity Clearing

Terry Flanagan

Société Générale Securities Services has consolidated its cash equity clearing which LCH.Clearnet said is part of a growing trend amongst financial institutions and resulted in its interoperable volumes rising by over 50% in the last 18 months.

LCH.Clearnet, part of the London Stock Exchange Group, said it has been selected by the French bank for its pan-European interoperable cash equities.

Cécile Nagel, global head of equities at LCH.Clearnet told Markets Media: “All of our top 10 clients are looking at clearing efficiencies and rationalising their flows. This is a trend we expect to see continue but appreciate that we operate in a competitive environment.”

The European venues cleared by LCH.Clearnet are Aquis Exchange, BATS Chi-X Europe, BondMatch, Bourse de Luxembourg, Burgundy, Contracts for Difference (OTC product), Equiduct, Euronext, Galaxy, London Stock Exchange, Oslo Bors, Six Swiss Exchange, Traiana and Turquoise.

Nagel added: “We are hoping to add other venues this year.”

LCH.Clearnet cannot, for example, clear German equities on Deutsche Borse which have to be cleared by the exchange’s Eurex unit, but can clear German equities traded on other venues such as Bats or Turquoise.

Cécile Nagel, LCH.Clearnet

Cécile Nagel, LCH.Clearnet

Guillaume Heraud, head of business development for financial institutions and brokers, Société Générale Securities Services, said in a statement: “When it comes to clearing, robust risk management is of paramount importance. LCH.Clearnet’s expanding clearing activity across Europe, and innovation in clearing and risk management of OTC equities and equity derivatives were other contributing factors to our decision.”

Nagel said that by consolidating cash equity clearing, firms benefit from making just one contribution to a CCP default fund, reducing settlement costs and minimising reconciliations and reporting.

“Société Générale Securities Services will also reduce their clearing fees as our new pricing structure is volume-based,” she added.

Firms can also using their collateral more efficiently through netting trades at different venues.

Roland Chai, head of equities at LCH.Clearnet, told Markets Media firms can also benefit from consolidation by netting more listed equities against their over-the-counter positions.

Chai said: “Last year we launched an initiative with Traiana to increase netting between listed and OTC equity products and this has achieved good momentum.”

LCH.Clearnet, alongside rivals EuroCCP and SIX x-clear, was part of Traiana’s launch of Harmony CCP Connect for equities which transfers OTC equity trades from the existing bilateral settlement model into central clearing.

Chai added that LCH.Clearnet is global and mulit-asset class so there are additional benefits in consolidating clearing.

Analyst at Barclays said in a report that since LCH.Clearnet was consolidated into the London Stock Exchange Group in April 2013, the clearer’s run rate operating revenue contribution has increased 26% from £60m to between £82-£83m and its top-line revenue was higher than expected in 2013/2014.

“It was well flagged that LCH was likely to lose exchange-based clearing revenues, as ICE in-sourced clearing of the Liffe business and LME built its own CCP,” added the analysts. “However, LCH has successfully managed to replace exchange-based clearing revenues with those from OTC markets.”

Featured image via fovivafoto/Dollar Photo Club

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