NYSE Euronext plans dual clearing venues with LCH

By Luke Jeffs

LONDON (Reuters) - Exchange giant NYSE Euronext <NYX.N> is looking to set up two parallel clearing services if it seals its proposed deal to buy Anglo-French clearing house LCH.Clearnet as well as merging with Deutsche Boerse <DB1Gn.DE>.

NYSE Euronext, which agreed a $10.2 billion combination with its German peer on February 9, has partnered with data vendor Markit in early talks about a possible joint takeover of LCH.Clearnet, a source close to the talks said on Monday.

Deutsche Boerse already owns and operates the Eurex Clearing business, which handles trades on both its Eurex futures market and the boerse's Xetra share market.

"NYSE Euronext would be looking to keep its existing plans to move listed derivatives to Eurex Clearing," the source told Reuters on Monday.

"If successful (this) would provide the group with an option to create more customer synergies between the listed and over-the-counter (OTC) markets," the source said.

The plan is for Eurex Clearing to act as the clearer of choice for instruments traded on an exchange, while LCH.Clearnet will become the venue for the far larger off-exchange or OTC markets, the source said.

Details of the NYSE Euronext plan emerged after media reports on Friday said that the transatlantic exchange operator, along with its rival Nasdaq OMX <NDAQ.O> and the London Stock Exchange <LSE.L> have all made bids for LCH.Clearnet, which is based in London and Paris.

This prompted LCH.Clearnet to confirm on Saturday that it had received a number of offers from exchange operators about a possible tie-up, declining to comment further.

However, the LSE said on Sunday it is not currently in talks with the clearing house.

Clearing, which has been thrust into the spotlight since the collapse of Lehman Brothers in late 2008, provides trading counterparties with a guarantee against the other party defaulting on its obligations.

The sector has been given a huge boost by regulators in Europe and the United States who are planning to pass into law new rules to force large swathes of the $600 trillion OTC market in derivatives, such as interest rate and credit default swaps, to use clearing houses.

This has prompted many of the world's largest exchange operators, some of which own there own clearing providers while others use third party specialists like LCH.Clearnet, to review their clearing strategies.

NYSE Euronext, which along with the LSE uses LCH.Clearnet, said last year it will set up in 2012 its own European clearing services and move business off LCH -- a model used by Deutsche Boerse.

"NYSE Euronext wants to in-source its clearing in Europe and LCH.Clearnet would present a ready-made clearing solution for them, as well as complementing their clearing presence in the U.S.," said Herbie Skeete, managing director at exchange consultancy Mondo Visione.

NYSE Euronext also launched in March this year New York Portfolio Clearing, the exchange's joint venture with U.S. clearing giant the Depository Trust & Clearing Corporation, to handle interest rate futures trading in the United States.

NYSE Euronext is the largest shareholder in LCH.Clearnet, with about 9 percent of the firm's stock, while the next largest owner is the London Metal Exchange with 8 percent.

The remaining 83 percent is owned by LCH.Clearnet's largest banking and brokerage clients, most of whom would need to approve any takeover of the firm.

(Editing by Douwe Miedema and Greg Mahlich)