August 2, 2018 / 6:34 AM / 3 months ago

London Stock Exchange dismisses Frankfurt euro clearing threat

LONDON (Reuters) - The London Stock Exchange said on Thursday that more customers were clearing euro-denominated contracts, as it sought to quell concerns that rival Deutsche Boerse (DB1Gn.DE) was beginning to steal significant market share.

FILE PHOTO: People walk past the London Stock Exchange Group offices in the City of London, Britain, December 29, 2017. REUTERS/Toby Melville/File Photo

Euro clearing has become a Brexit battleground as some EU policymakers want it moved from London, where LSE dominates, to the single currency area after Britain leaves the bloc next March, threatening the City’s role as a global financial centre.

Deutsche Bank (DBKGn.DE) said this week it was shifting a large part of its new euro derivatives clearing from London to Deutsche Boerse in Frankfurt.

“We have seen no discernible change in customer behaviour,” David Warren, LSE Group chief financial officer, told reporters on Thursday when the bourse announced first-half results that sent its share price sharply higher.

LSE’s clearing unit LCH, which clears about 90 percent of euro denominated contracts globally, saw a 34 percent increase in customers clearing euro swaps in the first half, Warren said.

Deutsche Boerse was simply getting a “small slice of a growing pie”, he added.

The LSE reported a 21 percent rise in first-half adjusted operating profit to 480 million pounds as its clearing, capital markets and information services businesses grew strongly.

That topped the 459 million pounds in a company supplied consensus forecast from 13 analysts.

The LSE’s total income rose 12 percent to 1.06 billion pounds versus an estimate of 1.05 billion.

LSE shares were up 1.9 percent at 4,441 pence at 0801 GMT, making them the second biggest percentage gainers on London's blue-chip index .FTSE.

BREXIT PLANS

The LSE said it was activating contingency plans in case Britain crashes out of the European Union next March without a transition deal.

These include applying for an EU licence in Amsterdam for its Turquoise pan-European share trading platform.

“The complexity and the lack of clarity of the application of a hard Brexit may decrease the effectiveness, or applicability of some of these contingency plans,” the bourse operator said in a statement.

A hard Brexit could “adversely affect” its business, results of operations, financial condition and cash flows, it said.

The exchange also has a clearing subsidiary in Paris, but Warren said it was not applying for an extension of its licence there to clear interest rate swaps, the contracts that Deutsche Boerse is attracting from Deutsche Bank.

Warren said LCH in London will apply instead to the EU for “recognition” to continue serving customers in the EU from London after Brexit.

Customers don’t want clearing to be split between different clearing houses, which would bump up costs, Warren said.

“It’s never going to be about one currency, one product,” he added.

Goldman Sachs veteran David Schwimmer started his new job as LSEG chief executive this week facing the task of helping the 300-year-old institution to navigate Brexit.

He replaces Xavier Rolet who left last November after a boardroom battle involving activist hedge fund TCI, headed by Christopher Hohn.

Asked if he would be meeting with Hohn, Schwimmer told reporters: “I look forward to meeting with all of our shareholders.”

Reporting by Noor Zainab Hussain in Bengaluru, editing by Huw Jones and Emelia Sithole-Matarise

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