The fate of LCH.Clearnet, Europe’s largest independent clearer, took another turn on Monday as a 12-member consortium of banks and Icap, the inter-dealer broker, said its long-awaited bid for the clearer would be delayed until the end of May.
The development adds to the uncertainty surrounding LCH.Clearnet at a time when clearing, especially of over-the-counter derivatives, has risen to prominence amid initiatives by policymakers to “re-regulate” the financial sector.
It also risks eroding the credibility of the consortium, which had been expected to submit an offer at least a month ago, industry observers said.
LCH.Clearnet is one of the key players in OTC clearing, through its SwapClear interest rate derivatives clearing service, and a joint venture with NYSE Liffe to clear OTC credit default swaps, which started in December.
That has made it one of the most prized assets in the trading and clearing sector, prompting some of the biggest banks and Icap to approach the clearer about a possible cash offer as far back as November.
The largest players in the OTC derivatives markets are interested in LCH.Clearnet as a way of having some control over and economic interest in an expected rise in the expected growth of clearing, a hitherto low-profile business.
In a sign of that growth, IntercontinentalExchange, the US futures exchange, operator of OTC trading and clearing systems, said on Monday that it would add 20 new OTC oil contracts to its clearing platform.
The board of LCH.Clearnet meets on Tuesday to discuss its options. The clearer has also since October been in talks with The Depository Trust & Clearing Corporation, the dominant US clearing and settlement services group, about a possible combination of their groups.
A third option for LCH.Clearnet is an internal proposal, floated by chief executive Roger Liddell, that the clearer buy out all of its roughly 120 shareholders – mostly banks and brokers – and “rebalance” the shareholding through a fresh buy-in. Mr Liddell had approached some of the banks in the consortium about joining that proposal.
However, the consortium wrote on Monday to the LCH.Clearnet board rejecting the share rebalancing concept. People familiar with the matter said the consortium believed the rebalancing exercise would still leave the clearer with more than 50 shareholders – too many to allow a clear push to improve the efficiency of the group.
Users of LCH.Clearnet have long criticised the clearer for slow decision-making and lack of clarity on strategy – a product partly of its quasi-utility ownership structure and poor past management.
The consortium also told LCH.Clearnet that it had recruited an extra three banks, making a total of 11.
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