LCH.Clearnet Says Annual Profit Gains 11% on Increase Revenue

LCH.Clearnet Group Ltd., the world’s biggest clearinghouse for swaps, said full-year profit rose 11 percent as revenue climbed.

Net income increased to 21.2 million euros ($28.1 million) in 2011 from 19.1 million euros the previous year, the London- based company said today in a statement. Net revenue climbed 10 percent to 391.4 million euros.

“2011 was a strong year for performance and growth,” LCH.Clearnet said in the statement. “The underlying core businesses performed well, with volumes up across asset classes, in many instances to all-time highs.”

LCH.Clearnet is holding exclusive takeover talks with London Stock Exchange Group Plc (LSE), after earlier attracting interest from Nasdaq OMX Group Inc. (NDAQ) and NYSE Euronext, which planned to bid in partnership with Markit Group Ltd. After NYSE’s merger with Deutsche Boerse AG was blocked by regulators last week, the New York-based company’s chief executive officer, Duncan Niederauer, said there are other “assets” available, such as LCH.Clearnet and the London Metal Exchange.

LCH.Clearnet, whose SwapClear service began clearing interest-rate swaps traded between banks in 1999, has seen its market share in equities eroded by new entrants. Its biggest customers such as NYSE Euronext and the London Metal Exchange are considering clearing their own trades and two chief executives have departed in less than six years.

Derivatives Clearing

Clearinghouses such as LCH.Clearnet and Deutsche Boerse’s Eurex Clearing operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the threat from a trader’s default. The businesses have become more valuable as regulators globally seek more central clearing of derivatives.

Yesterday, European Union officials and lawmakers brokered a deal on rules to force trading of some over-the-counter derivatives through clearinghouses to safeguard financial markets. The law will empower EU regulators to decide on types of derivatives that should be centrally cleared.

Exchange operators from New York to Frankfurt and Singapore have sought takeovers to augment equity businesses after regulation and automated trading eroded profit. Nasdaq, which dropped a bid for NYSE Euronext (NYX), is the majority owner of International Derivatives Clearing Group LLC, which opened in January 2009 for interest-rate swap futures.

New Regulations

The banks that created over-the-counter derivatives in the 1980s are seeking control over how the $601 trillion market changes under new regulations in the U.S. and Europe.

The Dodd-Frank Act mandates that most swaps be processed by clearinghouses and that all trades are reported to data repositories.

As regulators urge more clearing for derivatives, exchanges such as Deutsche Boerse, NYSE, Intercontinental Exchange Inc. (ICE) and CME Group Inc., (CME) which own clearinghouses or have the so- called vertical model that locks in trading and post-trading, are offering more services. The banks that dominate the market are seeking to take stakes in clearinghouses or strike profit- sharing agreements.

LSE, which tried and failed to buy the Canadian exchange last year, lags behind its rivals in the clearing business.

To contact the reporters on this story: Nandini Sukumar in London at nsukumar@bloomberg.net;

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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