New LSE boss in $500 million move to tighten hold on clearing business

By Arathy S Nair and Huw Jones (Reuters) - The London Stock Exchange tightened its grip on derivatives clearing on Friday in a sign of growing confidence that the threat of losing chunks of business to European Union rivals after Brexit was receding. In the first major move by the exchange's new chief executive David Schwimmer, the former Goldman Sachs banker who took the reins in August, the LSE said it was spending 438 million euros ($501 million) on increasing its stake in LCH by 15.1 percent to over 80 percent. The transaction, which will be funded from cash and existing debt facilities, will add to earnings per share following completion, expected before the end of 2018, LSE said.

Reuters October 20, 2018 00:05:51 IST
New LSE boss in $500 million move to tighten hold on clearing business

New LSE boss in 500 million move to tighten hold on clearing business

By Arathy S Nair and Huw Jones

(Reuters) - The London Stock Exchange tightened its grip on derivatives clearing on Friday in a sign of growing confidence that the threat of losing chunks of business to European Union rivals after Brexit was receding.

In the first major move by the exchange's new chief executive David Schwimmer, the former Goldman Sachs banker who took the reins in August, the LSE said it was spending 438 million euros ($501 million) on increasing its stake in LCH by 15.1 percent to over 80 percent.

The transaction, which will be funded from cash and existing debt facilities, will add to earnings per share following completion, expected before the end of 2018, LSE said.

"This reflects our confidence in LCH for continued growth," the exchange's chief financial officer, David Warren told an analyst conference call.

LSE shares were up 0.9 percent at 4,324 pence at 0900 GMT, bucking a weaker trend in the broader stock market.

LCH is one of the world's top clearing houses for derivatives, but its dominance in euro denominated transactions has led to calls for that activity to be relocated to the single currency area after Brexit.

LCH also faces the threat of being locked out of the EU market when Britain leaves the bloc next March if a no-deal Brexit puts the legality of cross-border derivatives contracts into question.

Warren, however, said he was encouraged by recent meetings with regulators and central bankers who are looking at potential disruption to so-called contract continuity.

"We think there is a new urgency about getting solutions and legal certainty in the very near future, and it's very clear our customers want continuity of service," he said.

A working group lead by the European Central Bank and Bank of England on market risks from Brexit is due to report its initial findings in coming days.

EUROPEAN OPERATIONS

The LSE has a clearing unit in Paris, but Warren said customers don't want the exchange to apply for a licence there to handle the euro clearing currently being done in London.

LCH would need to serve notice on EU customers by December if it felt it could not continue clearing their transactions in London after Brexit, but exchange officials said on Friday they have no plans to do this in a further sign that the threat of disruption has receded.

Rival Deutsche Boerse in Frankfurt is stepping up efforts to attract LCH business from London but volume so far is small.

Warren played down the threat, saying euro-denominated business transacted by EU customers accounted for just 7-14 percent of LCH overall activity.

Nevertheless, the LSE, which also owns the Milan Exchange, has applied for a licence in Amsterdam to operate its Turquoise pan-European share trading service.

The LSE said that total income from continuing operations rose 8 percent to 522 million pounds in the quarter ended Sept. 30, below analysts' estimates of 530 million pounds.

Warren said an accounting rule change dampened revenue and income figures in the exchange's capital markets unit.

($1 = 0.7686 pounds)

($1 = 0.8735 euros)

(Reporting by Arathy S Nair in Bengaluru, editing by Dasha Afanasieva/Keith Weir)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

also read

France, Germany to agree to NATO role against Islamic State - sources
| Reuters
World

France, Germany to agree to NATO role against Islamic State - sources | Reuters

By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States

China's Xi says navy should become world class
| Reuters
World

China's Xi says navy should become world class | Reuters

BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.