Euronext increases "bargaining power" to buy London Stock Exchange's French clearing business with new ICE arrangement

William Turvill
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Euronext had agreed to buy LCH SA, but this deal was dependent on the London Stock Exchange-Deutsche Boerse merger going through (Source: Getty)

Euronext has increased its “bargaining power” over the London Stock Exchange as it remains keen to acquire the group’s French clearing business, known as LCH SA or Clearnet.

The pan-European exchange group today announced a deal with the Dutch clearing business of US giant Intercontinental Exchange (ICE) to process its derivatives transactions.

The 10-year agreement with ICE Clear Netherlands, which will be active from 1 January 2019, would see Euronext transferring LCH SA revenues to ICE. Currently, Euronext is believed to account for around half of LCH SA’s turnover.

The London Stock Exchange hit back after the announcement, saying that Euronext’s contribution from derivatives clearing was “immaterial to LCH SA” and makes up less than one per cent of the LSE group’s adjusted operating profit.

It also said LCH SA is in discussions to clear share trades by MTF, a pan-European platform that the group also owns, to enable “significant cost savings and efficiencies to investors in French, Dutch, Belgian, Portuguese and a range of other European securities”.

Read more: Stock exchanges on stand-by as they await merger news from Brussels

The Euronext-ICE deal has been announced less than a week after its acquisition of LCH SA from the London Stock Exchange fell through. The deal was dependent on the completion of the UK group’s merger with Deutsche Boerse, which was blocked by the European Commission last week.

Euronext has made clear that it remains keen on LCH SA, which it had agreed to buy for €510m (£435m).

Analysts at RBC Capital Markets described today’s deal as an “innovative solution for Euronext, in our opinion, one that increases their bargaining power as it seeks to acquire LCH SA and/ or renegotiate its contract with LCH SA”.

Euronext said in today’s announcement it has told the London Stock Exchange and LCH Group that the LCH SA deal remains a “strategic priority”.

Read more: German minister warns US exchanges off Deutsche Boerse after LSE collapse

Euronext chief executive Stephane Boujnah added:

But in the absence of obtaining an agreement to complete this acquisition, Euronext is fully committed to securing the best long-term solution for its post-trade activities, in the interests of clients and shareholders.

I am therefore pleased to be signing heads of terms with ICE, who are renowned for their world-class clearing services, to deploy joint clearing services to Euronext markets from Amsterdam and Paris.

Speaking to City A.M. in January, Boujnah indicated that the LCH SA deal created a win-win situation for Euronext: either the London Stock Exchange-Deutsche Boerse deal, which he had previously believed would create a “virtual monopoly”, would fall through; or his firm would acquire an important new business.

Euronext was also close to the scene of the collapse of the overall merger. The European Commission had told the London Stock Exchange it would need to sell its Italian trading business MTS to Euronext.

Read more: MTS and the London Stock Exchange deal: How a straw broke the camel's back.

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