LSE fears rise in costs after London Clearing House deal

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The London Stock Exchange yesterday threatened to abandon the London Clearing House after the settlement company announced plans to merge with its European counterpart, Clearnet, in a €1.2bn (£829m) deal.

"The announcement made by LCH and Clearnet leaves a number of questions unanswered," an LSE spokesman said. "As a result, we are seeking specific assurances through a new clearing services agreement with LCH. In addition, we are exploring alternative clearing arrangements."

LCH and Clearnet, the clearing arm of the pan-European exchange Euronext, yesterday revealed merger plans that have been three years in the making. This will make LCH Clearnet, the merged company, the largest settlement business in Europe. Under the terms of the deal, £23.6m will be rebated to LCH customers, and €150m to Clearnet customers.

The LSE, under its chief executive Clara Furse, said it feared that the deal would see increased costs for users of the enlarged company. As LCH Clearnet would be the dominant European clearing house, LSE is now keen to renegotiate its terms with LCH to ensure costs will not rise.

LSE is also understood to be uncomfortable with the involvement of Euronext, a rival exchange, in controlling the business that settles its trades.

But LSE contributed only around 2 per cent to LCH's profits last year, making it a dispensable customer if it decided to take its business elsewhere. LCH's most profitable customers are Liffe, the futures exchange now owned by Euronext, the London Metal Exchange and the International Petroleum Exchange.

LCH and Clearnet said the merger is due to be completed by the end of the year.