Crisis entrenches U.S. equity clearing powerhouse

By Jonathan Spicer and Daisy Ku - Analysis

NEW YORK/LONDON (Reuters) - The financial crisis is making it harder for European clearing houses to challenge the dominance of the DTCC, the sole clearing house for U.S. cash equity trades, as regulators strive to stabilise markets.

The Depository Trust & Clearing Corporation, which has a monopoly on the clearing and settlement of cash equities in the United States, has tempted competitors for decades.

But European houses have been stymied by a fragmented landscape at home that has made it difficult for any single clearing house to gain the scale needed to breach the U.S. market.

DTCC's recently proposed $975 million (625 million pounds) deal to take over European clearing house LCH.Clearnet, if approved, will give the U.S. powerhouse a key piece of European infrastructure that it can use to win business from other European players through lower fees.

While the deal could be a major step in reducing clearing and settlement costs for the cash markets on both sides of the Atlantic, there is constant tension between Americans and Europeans over the emphasis on the ability to monitor risk from a single vantage point, and the dangers of insufficient competition.

"Any time you bifurcate and trifurcate the market you add additional complexity into clearing, and you inject greater systemic risk as well," said David Grossman, analyst at San Francisco-based investment bank Thomas Weisel Partners.

Euroclear Chief Executive Pierre Francotte, a fan of some European infrastructure consolidation, has said current competition between clearers makes the matching of trades in Europe more efficient than in the United States.

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