LSE backs possible joint bid for LCH.Clearnet

LONDON Fri Feb 20, 2009 12:38pm GMT

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LONDON Feb 20 (Reuters) - The London Stock Exchange (LSE.L) is backing a consortium bidding for LCH.Clearnet, Europe's top securities clearing house, as it seeks new strategic revenue streams to compensate for squeezed trading margins.

"The LSE has a strong interest in initiatives that make post-trade more efficient, as it is an increasingly important component in the cost and quality of services provided to the market," an LSE spokesman said.

Last October, U.S. clearing house the Depository Trust & Clearing Corp, offered 739 million euro ($929 million) for Anglo-French LCH.Clearnet to create a transatlantic clearer.

Interdealer broker ICAP (IAP.L) set up consortium with 10 banks to mull a cash counterbid for LCH.Clearnet, which is 73 percent owned by a bank consortium, 16 percent by Euroclear and 11 percent by various exchanges.

The DTCC is due to sign final terms on March 15.

Strategically, LCH.Clearnet would give LSE a stake in a core part of market infrastructure that clears most of its trades.

Owning a clearing house is seen as an additional way of capturing trading volumes and generating extra revenues, and the LSE's move marks a fundamental change in strategic thinking.

The exchange was long a proponent of horizontal market structures by insisting that separately owned trading, clearing and settlement venues was the best way to promote competition.

The London exchange has already acquired Italian clearing house CC&G as part of its takeover of the Milan Exchange.

CC&G will become a pan-European clearer for Baikal, a "dark pool" trading venue the LSE is launching to compete with a host of new trading platforms eroding LSE's market share and forcing it to cut fees.

Britain's Observer newspaper has reported the ICAP-led consortium was offering about 800 million pounds, a 23 percent premium to the DTCC deal.

LCH.Clearnet has said ICAP's preliminary approach did not amount to an offer and it was continuing its merger discussions with DTCC.

Its net income rose 45 percent to 179 million euros in 2007, as turnover grew 10 percent to 1.36 billion. Equities and derivatives and swaps made up 75 percent of its revenue mix.

LSE shares, which peaked at 2,002 pence in January 2008 when it was itself a bid target, were down 4.6 percent at 434 pence by 1235 GMT, (Reporting by Daisy Ku, editing by Dan Lalor) ($1 = 0.7034 pound) ($1 = 0.7952 euro)

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