Crest unveils plans for Euroclear merger

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The wave of consolidation sweeping through European trading organisations hit the UK yesterday, when Crest, the settlement system for the UK stock market, announced plans to fold itself into Euroclear on the Continent.

The UK institutions and stockbrokers that own Crest will retain 19 per cent of the combined group, which will retain the name Euroclear, which currently settles the French, Dutch and Belgian markets.

The deal will make the enlarged entity the largest settlement system in Europe, leapfrogging its arch rival Clearstream, which is owned by the Deutsche Börse.

The aim of the merger is to create a single platform for members of Euroclear that offers settlement for share trading at domestic rates. This would reduce the cost of cross-boarder trading in Europe dramatically, making it almost as cheap to buy and sell shares across Europe as in the American market.

Settlement is the process by which shares are transferred from seller to buyer, under which the payment for shares reaches the seller and the legal title to the shares is transferred to the buyer. This all happens after shares have been bought on an exchange, and accounts for a significant proportion of the cost and complexity of share trading.

Euroclear, based in Brussels, and Crest have been in merger talks for months. They believe it will take until 2005 to drive cross boarder prices down to the level of domestic costs. In the meantime, those using the system will have the choice of trading in their own currency or that of the domain they are buying shares in.

The enlarged Euroclear will account for 60 per cent of stocks in the pan-European FTSE Eurotop 300 index of top 300 companies, and just over half of Europe's bond market. It hopes to entice more countries to join the system, which will be operational from September.

Sir Nigel Wicks, Crest's chairman, said the deal would provide "a giant step towards the delivery of an integrated European capital market."

By linking up with Euroclear, Crest has opted for the form of integration of capital markets favoured by the London Stock Exchange.

Clara Furse, the chief executive of the LSE, backs consolidation among trading platforms and separately between settlement houses, known as a horizontal approach, rather than the alternative in place in Germany where the exchange owns its settlement system, known as the vertical approach.

Ms Furse, who will sit on the board of Euroclear, said: "This deal is very good news for our customers. In bringing together two user-owned, user-governed 'horizontal' settlement organisations to create Europe's largest settlement organisation, Euroclear and Crest will be able to reduce the cost of settlement and, by extension, the cost of capital."

Nevertheless the LSE and Euronext, which owns a stake in Euroclear, will own 3.5 per cent combined of the new organisation.

Hugh Simpson, the chief executive of Crest, said users of Crest would not have to change their technology as a new system would be built onto the back of it.