.jpg)
The new facility, the second phase of the Central Counterparty (CCP) service, delivers optional settlement netting for trades executed through the London Stock Exchange's electronic order book (SETS), cleared through the LCH EquityClear® service, and settled in CREST.
The successful introduction of the CCP service in February 2001 has been an important factor in the near doubling of trade volumes through SETS. This has been achieved by offering the benefits of post-trade anonymity and the effective elimination of counterparty risk.
Settlement netting, a significant service improvement, will bring considerable additional benefits to market users, and is expected to bring still further volume growth and deeper liquidity, further improving the competitiveness of London's equity markets.
With netting of trades comes the advent of true "straight through processing" in the London market. For the first time, traders will be able simply to enter an order to SETS and then trade execution, routing to clearing, including netting, and settlement can occur automatically without further intervention.
The new service will also reduce back office costs by cutting the number of settlements by up to 95 per cent. This is in addition to delivering considerable capital cost savings, operational risk reductions and enhanced system capacity.
At the start of the service, some 60 per cent of SETS market volume will be netted. This is expected to rise to 95 per cent by the end of the year.
David Hardy, Chief Executive of LCH, said: "We are delighted to have worked closely with our colleagues at the London Stock Exchange and CRESTCo to bring the second and key phase of this world-class Central Counterparty service into use. Members of LCH EquityClearÒ will now be able to enjoy the further benefit of reduced operating cost that a CCP is able to deliver. Since the launch of the LCH EquityClear® service in February last year, the percentage of London Stock Exchange activity conducted on SETS has risen to over 60 per cent. This improvement to the service will push volumes still higher, and the potential of the service to continue to expand and add further value to the market is significant."
Clara Furse, Chief Executive of the London Stock Exchange said: "The introduction of settlement netting of trades is a significant step forward for the London market. It underlines our commitment to reducing the unit cost of trading and reinforces London's pre-eminent position as an international equity market. This makes it very clear that a horizontal market infrastructure works in the best interests of our customers."
Hugh Simpson, acting Chief Executive of CRESTCo, said: "The introduction of optional settlement netting builds on the successful introduction of the CCP service in February 2001. Through partnership between CRESTCo, LCH and LSE, we have created a world-leading infrastructure for London's securities markets and our participants
