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LSE Offers To Sell Its French Clearing House To Rival Euronext

In a bid to eliminate concerns about competition from its proposed merger with Deutsche Boerse, the London Stock Exchange (LSE) is in talks with rival Euronext for the sale of its French clearing house.

The European Commission is currently reviewing the deal terms for the merger between LSE and its German rival and has raised concerns about the impact on competition. It will be giving its final decision on the issue in March 2017.

Competitors have already complained that the merger is likely to dominate the market and stifle competition particularly with regards to corporate fund raising.

LSE made the offer to sell its arm LCH Clearnet SA three months but the deal is likely to go ahead only if the larger exchanges merge as planned, according to Euronext.

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Euronext’s chief executive Stephane Boujnah has said earlier that it was a natural buyer for LCH but the deal price must reflect the fact that Euronext’s clients account for over 50 percent of LCH’s revenues. Experts believe that the deal makes sense given the relationship between the exchanges.

In a statement, John Colley, Professor of Practice at Warwick Business School said

As half of [LCH] Clearnet's trade is with Euronext it makes sense to start there as they can probably achieve the greatest benefits from the purchase, and hence will probably pay the highest price. Whilst Nasdaq and CME may also be interested, the extent of Euronext's trade with Clearnet suggests they will have a say in where the business ends up and its value.

The merger-of-equals planned between the LSE and Deutsche Boerse was initiated last year as a means to counter rising competition from American and Asian clearing houses. The deal valued at £21 billion was finalized earlier this year and will result in creation of one of the largest exchange firms in the world. It is expected that it will yield savings of upto £210 million a year after five years, in addition to £377 million savings already identified.

The merger has however run into political trouble after United Kingdom voted to leave the European Union in June this year. European leaders like French president Francois Hollande have asserted that London should no longer have control over euro-based trades worth trillions that currently goes through London-based clearing houses.

Another issue being highlighted is that the merged entity is proposed to have its headquarters in London which is being opposed in Germany.


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