Wednesday, April 29, 2009

DTCC abandons merger with LCH.Clearnet

The Depository Trust & Clearing Corporation (DTCC) has abandoned its proposed merger with LCH.Clearnet saying it saw no choice but to pursue other strategic alternatives.

The DTCC, which owns EuroCCP, first mooted a merger with LCH.Clearnet back in October 2008. However, a bank-led consortium including participants such as interdealer broker, Icap, threw its hat into the ring.

A statement released by the DTCC appeared to lay the blame for the failed merger at the feet of LCH.Clearnet saying it had not agreed on a basis for "consummating" the proposed merger, which left the DTCC with no choice but to pursue an alternative strategy in its quest to develop transatlantic clearing services.

As to what those alternative strategies are is anyone's guess, but the general thinking, at least among market participants, is that there are too many CCPs (central clearing counterparts) in Europe. In addition to LCH.Clearnet and the DTCC's European subsidiary, EuroCCP, there is Eurex Clearing, the London Stock Exchange's Italian clearer CC&G, SIS x-clear and EMCF, which is owned by Fortis and exchange group Nasdaq OMX.

The Code of Conduct for Clearing and Settlement was meant to encourage interoperability between clearing providers, but that has not happened and most believe the only way to reduce the numbers is through consolidation, not interoperability, which can lead to greater risks.

But with some exchanges keen to own CCPs and other countries that lacked a CCP setting up ones in the wake of the Lehman collapse, consolidation does not appear to be on the cards right now.

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