November 29, 2012 11:24 am

LCH.Clearnet set for Asian expansion

LCH.Clearnet has embarked on plans to expand into Asia in the first sign that the transatlantic clearing house is diversifying beyond Europe and its rapidly growing US swaps clearing business.

The move highlights how US and European clearers are ramping up their focus on Asia to offset slowing volumes at home and to take advantage of opportunities thrown up by the growth of electronic trading and the effect of Group of 20 regulations on derivatives.

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LCH.Clearnet has spent much of the past two years focusing on building an over-the-counter swaps clearing business in the US through its SwapClear interest rate swaps platform. It is also about to be acquired – pending UK regulatory approval – by the London Stock Exchange.

Ian Axe, chief executive, said the time had come to start looking at Asia and he would be talking to asset managers, brokers and regulators on a visit that would take him to Australia and Hong Kong.

“We have a lot of international organisations who are members and clients of members of ours, so it would be unusual for me not to look at an Asia strategy. I am a year and a half into this role and starting to think about the region,” he said in an interview at the Futures Industry Associations’ annual Asia conference.

Asked what LCH.Clearnet could do more broadly in Asia, Mr Axe said: “It could be joint ventures, but I am just hypothesising.”

"For us the opportunity is in the fact that we have a multi-asset class offering. Asia is a growing market which can benefit from the experience we have. There are various markets that need clearing, including commodities,” he said.

LCH.Clearnet recently applied for a clearing licence in Australia where ASX, the incumbent exchange, is the sole clearer for its equities and derivatives markets.

“We have engaged in talking about what it would take to have a [clearing] licence [in Australia]. I haven’t committed the firm as of yet because I want to listen to the regulators and understand what the domestic players are thinking,” said Mr Axe, who arrives in Australia on Friday.

His visit comes amid a debate in the country’s financial markets about the merits of opening up clearing to competition. The Council of Financial Regulators is due to deliver a recommendation to Australia’s treasurer, Wayne Swan, reportedly by Christmas, on whether clearing and settlement should be opened to competition.

Any move by Australia to open up clearing would open the way for LCH.Clearnet to re-enter Australia, where one of the group’s precursors – the International Commodities Clearing House – acted as a clearer in Australia and New Zealand in the 1980s.

Rival trading platform Chi-X Australia, which trades equities, clears through ASX’s clearer, paying a fee to do so. Mr Axe confirmed that LCH.Clearnet had talked to Chi-X Australia about possibly providing clearing services.

ASX enjoys a monopoly position as an integrated exchange and clearing house. In a recent report, Commonwealth Bank estimated that large market participants in Australia were charged 104 times more than in Europe and 200 times more than in the US for clearing.

LCH.Clearnet already has a relationship with Singapore Exchange, also known as SGX, through a project being worked on with the LSE to trade each other’s blue-chip stocks. LCH.Clearnet would act as clearer.

Asked if LCH.Clearnet and SGX were discussing any further co-operation, Mr Axe said: “We’re talking in general terms at the moment.”

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