LONDON, Dec 20 (IFR) - Euronext has entered into exclusive talks with the London Stock Exchange Group regarding a potential acquisition of LCH.Clearnet SA, its Paris-based clearing business.
A sale of the French clearinghouse could pave the way for a planned US$14bn acquisition of LSEG by Deutsche Boerse. Earlier this month, the European Commission laid out its objections to the proposed deal and competition regulators are focusing on derivatives clearing as part of an in-depth investigation into the planned tie-up.
While DB's Eurex is one of the most active European venues for trading and clearing listed derivatives, LSEG's London-based LCH is responsible for over 95% of cleared swaps activity - primarily through interest rate swaps clearinghouse SwapClear.
Once very distinct markets, over-the-counter and listed derivatives liquidity pools are becoming increasingly merged through portfolio margining, which enables clients to net swaps exposures with listed futures and options.
LSEG is offering to offload its French clearing business, which houses credit default swap clearinghouse CDSClear, to assuage regulators' concerns that a tie-up between the two exchange operators will create a single, dominant provider in derivatives clearing.
Around 972bn gross notional of CDS has been cleared through CDSClear since its launch in 2012 while InterContinental Exchange has cleared more than US$80trn across its US and London-based CDS clearinghouses since 2009.
While the slim volumes do little to cut LCH's dominance in cleared swaps, the business could provide Euronext with a registered swaps clearinghouse from which it can expand.
Any agreement between LSEG and Euronext would be conditional on the successful closing of the deal.
"At this stage, there can be no certainty that these discussions will lead to a transaction, or as to the terms on which a transaction, if any, might be agreed," Euronext said in a statement.
In addition to Euronext, CME Group has also been touted as a possible buyer of the Paris clearing business. The US derivatives exchange currently has registered swaps clearinghouses in the US and London. A platform in continental Europe could prove useful if European politicians force euro clearing into the European Union following the UK's departure from 28-country bloc. (Reporting by Helen Bartholomew)