NYSE Euronext (NYX) today announces that its derivatives subsidiary, LIFFE Administration & Management (“LIFFE”), is to take full responsibility for clearing activities in its London market, subject to regulatory approval, with the target of beginning operations in the first quarter of 2009.
To achieve this, LIFFE will become a self-clearing Recognised Investment Exchange and will outsource certain clearing functions to LCH.Clearnet Ltd. (“LCH.Clearnet”). LIFFE has entered into binding agreements with LCH.Clearnet to terminate its current clearing arrangements and to establish the new arrangements, known as “LiffeClear”.
As part of the termination of its current clearing arrangements with LCH.Clearnet, NYSE Euronext will make a one-time €260 million payment to LCH.Clearnet. It is expected that the transaction will have a positive impact on earnings from 2009.
Hugh Freedberg, Group Executive Vice President and Head of Global Derivatives at NYSE Euronext, said:
“LiffeClear creates a new clearing solution that better suits LIFFE in today’s market environment. For NYSE Euronext, LiffeClear will enable competition against LIFFE’s vertically-integrated international peers on a more level playing field. For LCH.Clearnet, it means no disruption to its default backing arrangements and reaffirms its long-term relationship with LIFFE. Together, NYSE Euronext and LCH.Clearnet have created new, efficient and cost effective clearing arrangements that will benefit members and provide a strong basis for future innovation.”
Under the LiffeClear arrangements, LIFFE will become central counterparty to its own contracts. The clearing guarantee arrangements and related risk functions will be outsourced to LCH.Clearnet, which will remain responsible for defaulting member positions, applying LCH.Clearnet regulation and resources to the resolution of such a default.
For clearing members, there will only be de minimis operational changes. Clearing members will benefit from the investments LIFFE will be making in its post-trade services, from increased innovation by LIFFE and from the stronger competitive offering that LiffeClear will afford LIFFE, all without losing the fundamental backing of LCH.Clearnet.
LiffeClear will enable NYSE Euronext, though LIFFE, to enter the clearing business, allow direct investment in clearing technology and services, and improve both the opportunity to innovate and time to market for innovation. In addition, control over its clearing operations will position LIFFE to collaborate closely with NYSE Liffe, the new NYSE Euronext U.S. futures affiliate.
LIFFE and LCH.Clearnet have been liaising with FSA with respect to the new clearing arrangements. Commencement of LiffeClear operations remains subject to FSA’s approval.
