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LSE, LCH Still Negotiating Terms of Deal After OFT Clears

Dec. 14 (Bloomberg) -- London Stock Exchange Group Plc and LCH.Clearnet Group Ltd. said they are discussing “potential changes to the terms” of their takeover deal after the U.K. antitrust regulator said it cleared the purchase by LSE.

The two companies “remain in discussions regarding the implications of the new recommendations from the European Securities and Markets Authority and the European Banking Authority and potential changes to the commercial terms of the transaction,” they said in a statement today, minutes after the Office of Fair Trading cleared LSE’s purchase of a majority stake in LCH.

LSE, operator of Europe’s oldest independent stock exchange, agreed to buy a stake in Europe’s biggest clearinghouse for 463 million euros ($606 million) in March. Shares in LSE sank 8 percent on Sept. 28, the most in three years, after saying European Union regulations will cut income at its Italian central counterparty and may require a capital boost at LCH.Clearnet.

The purchase of a majority stake was today cleared by the OFT, which said the two companies do not compete with each other in relation to the vast majority of their activities.

“Any attempt to engage in foreclosure would be transparent to many customers in particular those who are also shareholders,” the regulator said. “These customers, who are sophisticated financial institutions, are represented on the LCH.Clearnet board, on its risk committees and on its product-advisory groups. This governance arrangement further limits the likelihood that the parties would engage in activities that would harm customers.”

Diversification Bid

LSE Chief Executive Officer Xavier Rolet is trying to diversify LSE’s business away from traditional equities trading after losing share to new market entrants. LSE abandoned a bid for TMX Group Inc., the operator of the Toronto stock exchange, last year after failing to win support from the Canadian company’s shareholders.

The European Securities and Markets Authority has proposed that 95 percent of a clearinghouse’s cash deposits placed with financial institutions must be collateralized with debt instruments meeting certain conditions of liquidity and credit risk, LSE said in September. The rules would cut LSE’s treasury income in fiscal 2014 and force LCH.Clearnet to increase capital by 300 million euros, the companies said.

Members of clearinghouses, which act as central counterparties in derivatives contracts to spread the risk of default, will also have to contribute a quarter of the institution’s capital reserves, ESMA said.

LSE first-half post-trade-services revenue dropped 15 percent to 44.6 million pounds ($72 million).

To contact the reporter on this story: Nandini Sukumar in London at or NandiniSukumar on Twitter

To contact the editor responsible for this story: Andrew Rummer at

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