The Italian government has not collapsed in a flurry of post-bunga bunga recrimination, at least not yet.
With the ECB standing ready, the debt markets are calm, and investors in the banks are feeling good about improvements in asset quality and the direction of earnings. Read more
Breaking pre-market news on Friday,
- LSE confirms it’s bidding for a majority stake in LCH.Clearnet – FT, Bloomberg. Read more
Meanwhile in Europe … Money markets are also moving.
Recent bidding patterns at the European Central Bank’s seven-day funding operation below: Read more
This is getting to be a tradition after peripheral bailouts…
Dear RepoClear Member, Read more
First — a friend of FT Alphaville points out that Portugal’s 10-year bond yields have now breached LCH.Clearnet’s famous ‘margin call’ spread for the first time.
The threshold is 450bps: the spread was 454bps at Wednesday’s close. The bonds have been on their way there for some time. Read more
LCH.Clearnet has doubled the margin requirement on members’ trading in Irish government bonds — just a week after this was lifted to 15 per cent.
Here’s Wednesday’s letter, which contains something of a disclaimer, to members: Read more
Deus Ex Machiatto might be talking about bank funding in his latest blog post, but you could well extract his thinking to the sovereign market too:
Just being solvent is not enough. The market withdraws funding long before insolvency, typically. So the real safety threshold is being able to roll your funding. The problem is, this is an epistemic soundness criteria. That is, it depends on others’ beliefs. Read more
To post collateral or not to post collateral?
That is the sovereign derivatives question of the week. Read more
Someone call in a ref, FT Alphaville says. It’s the clash of the clearing houses, who are trading blows over who has the best standards for the margin deposits houses require from their customers in order to cover the risk of default. The tensions are clear: regulators want high margins, but houses want to stay competitive. Read more
LCH.Clearnet, Europe’s largest independent clearing house, plans to resolve the question of its future ownership with a buyback programme that will see it buy out its largest shareholder, Euroclear. The group will use funds swelled by the extreme volatility on markets last year and a one-off payment of €260.4m ($379.6m) from NYSE Liffe for the renegotiation of a contract.
LCH.Clearnet is in talks with a consortium of banks and Icap, the inter-dealer broker, as well its own shareholders, about a proposal that would see the UK-based clearer buy out many shareholders at €11 ($16) a share and hand a possible controlling stake to the consortium. The development is the first sign in months that the ownership of LCH.Clearnet could be near resolution. The clearer for the LSE and Euronext since last year has been at the centre of a complex battle over what has become one of the world’s most prized post-trade businesses.
Earlier this week, IntercontinentalExchange bragged that its European clearing unit marked its second week of operations by clearing 699 transactions with a notional value of €31.9bn. The exchange’s US clearing unit, ICE Trust, processed more than $1,700bn North American CDS indices.
In all, not a bad show – and especially interesting in light of the decision by rival NYSE Liffe to abandon its own European clearing intiatives. The FT reported in July that NYSE Liffe had placed its BClear project – launched last December – “under review” after it had failed to clear a single contract. Read more
NYSE Euronext, operator of the New York Stock Exchange, on Thursday reported a Q2 net loss of $182m, compared with a profit of $195m a year ago, after absorbing a one-time charge, mostly made up of a $355m payment to LCH.Clearnet for breaking a contract as the US group moved to set up its own UK-based clearer. The payment is tax-deductable, which will reduce it to $250m, but it still exceeds the $200m that NYSE Euronext this month agreed to pay for 20% of Qatar’s Doha Securities Market.
NYSE Euronext on Wednesday said it opposed a plan by a consortium of 11 banks and Icap, the inter-dealer broker, to buy LCH.Clearnet, Europe’s largest independent clearing house. The exchange group is the second largest shareholder in the clearer with 5%. Separately, the FT reports that LCH.Clearnet will on Wednesday unveil plans to offer the first global clearing service for asset managers, pension and hedge funds in interest rate swaps.
The Depository Trust & Clearing Corporation, the US securities post-trade group, is open to renewing talks with LCH.Clearnet, Europe’s largest clearing house, about reviving plans for a merger between the two clearing houses, Don Donahue, DTCC chief executive, told the FT. Only a month ago, DTCC said it was ending a preliminary agreement with LCH.Clearnet for a deal to create the world’s largest equities and derivatives clearing and settlement. The UK-based clearer is also in talks with a consortium of 11 banks and Icap, which wants to acquire LCH.Clearnet.
LCH.Clearnet, Europe’s biggest independent clearing house, plans to respond to a €830m (£748m) bid from a consortium of 11 banks and Icap, the inter-broker dealer, by proposing joint discussions aimed at combining elements of the bid with the clearer’s own proposal for a new structure. The clearer also plans to restructure part of its technology platform in an effort to save €28m and further reduce clearing fees – a key demand of market participants.
A consortium of 11 banks and Icap, the interdealer broker, has submitted an €11-per-share cash offer for LCH.Clearnet, valuing the clearing house at about €830m ($1.1bn). The bid, which is understood to have been submitted on Friday, marks the latest twist in the fate of Europe’s largest independent clearer, which clears for the London Stock Exchange.
In case you missed these stories:
- Hedge funds have their best month in years
Hedge funds posted their best monthly returns in nine years in April as they took advantage of rallying stock markets and opportunities in the energy and fixed income markets. Read more
LCH.Clearnet, scrambling to defend its independence as Europe’s largest clearing house, plans to buy out its roughly 120 shareholders in a plan to convert into a user-owned utility. After the buy-out, shareholders would be invited to buy back into the clearer following its conversion. The move is designed to pre-empt overtures by a group of eight banks, Icap and the London Stock Exchange, which are expected next week to make an offer for the clearer. That will rival LCH.Clearnet’s preliminary deal to merge with The Depository Trust & Clearing Corporation of the US.
The London Stock Exchange has confirmed it is part of a consortium involving Icap, the inter-dealer broker, and about 10 investment banks that may make a cash offer for LCH.Clearnet, Europe’s largest independent clearing house. The development comes as policymakers press for clearing procedures to be applied to areas of the markets where none have hitherto existed – such as in the OTC or bilaterally negotiated markets. LCH.Clearnet, which clears trades done at the LSE, is at the centre of such developments because it is owned by market participants and exchanges.
Tullett-Prebon, GFI Group and Tradition, three of the world’s largest interdealer brokers, have approached a consortium considering an offer for LCH.Clearnet, Europe’s largest independent clearing house, about joining the bid. The move signals growing support within the key interdealer broking industry for the consortium’s plan to take over LCH.Clearnet. Icap, the biggest interdealer broker, is already part of the consortium.
A consortium of investment banks and inter-dealer broker Icap are in discussions about bidding for LCH.Clearnet, Europe’s largest clearer, in a move aimed at breaking up a deal that would see the UK-based clearer sold to a US clearing group, Depository Trust & Clearing Corporation. LCH.Clearnet in October signed a non-binding agreement to merge with DTCC to create the world’s largest clearer. LCH.Clearnet shareholders would receive a total of up to €739m, or €10 a share, most to be funded through LCH.Clearnet’s revenue. But the consortium is planning to offer a premium to that price. LCH.Clearnet is set this week to start clearing for SmartPool, a new “dark pool” for European equities trading launched by NYSE Euronext.
Liffe, the futures exchange, and LCH.Clearnet, the London clearer, will on Monday become the first group to offer clearing of credit default swaps, which are central to regulatory worries over the risks posed by defaults in the credit derivatives markets. The development comes as efforts by regulators on both sides of the Atlantic to get such bilaterally negotiated, or OTC, contracts shifted on to centrally cleared platforms are coming to a head.
ICE Futures Europe, the London energy exchange operated by the InterContinental Exchange of the US, has received agreements from almost all of its members to start using ICE’s new clearing house and abandon their current clearer, LCH.Clearnet. The development is the latest twist in what is emerging as the biggest battle between trading and clearing systems to have emerged in London in years. It is also a serious blow to LCH.Clearnet, Europe’s largest independent clearer, as it tries to shore up its business as some of its biggest clients take their business elsewhere or reduce their relationship with the clearer. Until now, it has been unclear whether ICE users would feel sufficiently confident in ICE’s planned clearing operation to commit to shifting their open interest from LCH.
London’s vast energy markets could be damaged if a looming battle for control of liquidity in its energy contracts were to get out of hand, the Futures and Options Association warned Wednesday. The Intercontinental Exchange, or ICE, is locked in battle with rival New York Mercantile Exchange, together with LCH.Clearnet, the London-based clearer, about competing clearing offerings. At stake is whether market users will elect to shift their open positions from LCH.Clearnet, which ICE currently uses, to a new clearing house planned by ICE – or keep them at LCH.Clearnet. Fearful of losing the business, LCH has teamed up with Nymex in efforts to prevent the biggest users of London’s energy products defecting to ICE’s new clearing house.
Europe’s largest clearing house, LCH.Clearnet, and The Depository Trust & Clearing Corporation of the US have held talks about a possible combination that would create the first post-trade services group straddling the Atlantic. The talks come as Europe is struggling to streamline its fragmented market for clearing and settlement services. Any merger with LCH.Clearnet – likely structured as a takeover by the DTCC – would create by far the largest clearing and settlement group in Europe.
Two derivatives trading rows, both involving LCH.Clearnet, Europe’s largest clearing house, look set to test the determination of the European Commission to open securities markets to more competition. In both clashes – one involving the InterContinental Exchange and the other involving Liffe – exchanges are moving to take control of their own clearing, and customers are threatening to take their respective cases to the Commission. The rows could also have implications beyond Europe, as the US Department of Justice has asked the UK Treasury to examine whether ownership of clearing houses by futures exchanges is anti-competitive.