LSE ruling shows UK and continent are poles apart

By Stewart Fleming

Date: 03/11/05

A deepening gulf between British and continental policymakers has emerged with the ruling this week from the UK Competition Commission that if Deutsche Börse (DB) or Euronext, the two leading continental exchanges, want to take over the London Stock Exchange (LSE) they must cut their links to their related post-trade clear-ing operations.

The restructuring of Europe's ramshackle clearing and settlement systems, the bodies through which stocks, bonds and derivatives contracts are transferred when a trade is completed, is seen as vital for the deeper integration of Europe's financial markets and an essential under-pinning for the single currency.

On Tuesday the UK Competition Commission said that if either exchange was to buy the LSE it would have to limit its shareholdings and board representation at the LSE's clearing provider. Euronext has a 41.5% stake in a clearing and settlement operation LCH-Clearnet, which it has offered to reduce sharply. DB owns a rival, Clearstream.

But experts in Brussels say that continental exchanges and some other major financial institutions believe that severing ownership ties is not the only way to ensure that investment banks have free access to, equitable treatment by and transparency of pricing within, a vertically integrated trading, clearing and settlement silo such as DB.

Specialists in the field also said that Charlie McCreevy, the internal market commissioner, shares this view.

"McCreevy is not focusing on regulating ownership," said one Brussels analyst.

McCreevy has called privately for financial market participants to find a private-sector solution to clearing and settlement restructuring and has warned that unless this was forthcoming he might legislate.

Article reports on the ruling from the UK Competition Commission, on 1 November 2005, that if Deutsche Börse (DB) or Euronext, the two leading continental exchanges, wanted to take over the London Stock Exchange (LSE) they had to cut their links to their related post-trade clearing operations. Clearing and settlement systems are the bodies through which stocks, bonds and derivatives contracts are transferred when a trade is completed.

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