LSE to slash cost of cross-border trades by 90%

The London Stock Exchange yesterday sought to regain the initiative after OM Gruppen's hostile bid as it unveiled plans to slash the cost of settling cross-border trades in German and UK equities by up to 90 per cent from next year.

The London Stock Exchange yesterday sought to regain the initiative after OM Gruppen's hostile bid as it unveiled plans to slash the cost of settling cross-border trades in German and UK equities by up to 90 per cent from next year.

Crest and Clearstream, the settlement organisations for the London and Frankfurt stock exchanges said yesterday that by linking systems directly and cutting out intermediaries they will be enable to ensure that UK and German investors will pay no more for settling iX cross-border trades than they currently pay for domestic trades.

Don Cruickshank, LSE chairman, said the deal unveiled yesterday showed that iX meant exactly what it said when it claimed it wanted to create a market where it would be as easy to trade an foreign share as it is to trade in domestic stocks.

Andre Lussi, president and chief executive officer of Clearstream, which is 50 per cent owned by Deutsche Börse, the Frankfurt stock exchange: "Our solution effectively converts cross-border settlement into domestic."

Angela Knight, chief executive of Apcims, the retail broker lobby group which has been one of the foremost critics of the failure of the iX deal to tackle the wider issues welcomed yesterday's announcement.

However, Charlotte Black marketing director of Brewin Dolphin dismissed yesterday's announcement : "This would have happened anyway. Crest can settle anything any where. We are fighting for the future of our business, not to get the highest value for our shares. OM has come up with a completely different vision. They are telling us they will provide a fast efficient dealing system while allowing us to carry on doing business the way we do now. Mr Cruickshank really does not seem to have grasped how strongly we feel."

Mr Cruickshank said that the hostile bid from OM had done the LSE a favour. He said that despite talk of a counterbid Deutsche Börse remained committed to the iX merger as it stood. He added that apart from OM no other party had sought access to the information required to table a bid.

Critics had argued that one of the key flaws of the initial iX merger plan was the fact that it concentrated on the issue of merging trading platforms while ignoring the cost of settlement costs which can account for more than 50 per cent of the total cost of dealing cross-border.

Mr Cruickshank admitted that the arrangement would work even if the IX merger fails. However, he insisted that it would not sit as easily with what OM proposed as it did with the iX plans for pan-European trade: "The fact that cross border costs have come down to the level of domestic costs is very supportive of the iX model," he said.