Deutsche Börse put on spot by cut in LSE settlement charges

Crestco, the UK securities settlement house used by the London Stock Exchange, announced tariff cuts of up to 67 per cent, putting further pressure on the LSE's suitor Deutsche Börse to guarantee low user charges.

Crestco, the UK securities settlement house used by the London Stock Exchange, announced tariff cuts of up to 67 per cent, putting further pressure on the LSE's suitor Deutsche Börse to guarantee low user charges.

Crest's parent, Euroclear, said it would cut its tariff on netting trades executed on an exchange from 15p to 5p from 1 April, falling to as low as 1p for clients in the highest volume band. The cost of inputting details of trades to be cleared and settled will be cut by half from 8p to 4p per trade. The reductions will cost the user-owned and governed group £11m a year.

Comparable prices for Clearstream, the settlement business owned by Deutsche Börse and Euroclear's arch-rival, were not available as the German exchange bundles prices for trading, clearing and settlement together. A source familiar with the matter said: "It does throw the spotlight on Clearstream's tariff policy. Clearstream has not reduced tariffs, despite being asked to."

Crest's move comes after Deutsche Börse, led by Werner Seifert, and Euronext outlined rival proposals to buy the LSE.

The LSE's users' concerns have centred on clearing and settlement; in particular, they are worried about Deutsche Börse's "vertical silo" structure, which combines trading platforms with clearing and settlement operations, giving it extra pricing power.

The London Investment Banking Association, which represents many of the users, is concerned that a takeover by Deutsche Börse would drive up tariffs and said trading platforms and clearing and settlement operations should be owned separately.

Euronext, for its part, owns 41 per cent of the clearing house LCH.Clearnet. Deutsche Börse and Euronext have said they would continue to use Crest for settling UK share trades. But while the German exchange said it would seek to cut clearing and settling costs if it buys the LSE, Euronext has remained silent on the issue of tariff reductions. Both also offer to cut trading costs by 10 per cent.

Tim May, the chief executive of Crest, said the group was able to make the tariff cuts because clearing volumes had gone up and looked to be sustainable, and the cost of building its system had been recouped. He stressed that the reductions were not in any way related to the LSE takeover battle, but added: "Once users get these sort of charges, it's important that everyone looks again at what it means for the situation."

The LSE welcomed Crest's tariff reductions and said they would increase the attractiveness of its trading services. "The exchange continues to work on solutions that will reduce trading related costs even more," it said.