Deutsche Börse angers banks by taking control of Clearstream for £1bn

Deutsche Börse, the Frankfurt stock exchange, dealt a blow to hopes for the creation of a pan-European clearing system for share trades after moving yesterday to take control of Clearstream, the Luxembourg-based clearing house.

The proposal would establish a "vertical silo" in which the stock exchange controlled access to, and the cost of, clearing and settlement of share trades. That contrasts with the UK's hourglass model whereby a central counterparty mediates between a variety of channels for transaction settlement.

Deutsche Börse, which already owns 50 per cent of Clearstream, is offering to pay 1.75bn euros (£1.07bn) in cash for Cedel, the company that owns the remainder of the business. Cedel has recommended the offer, and André Roelants and Robert Douglass are to retain their roles of chief executive and chairman.

UBS Warburg led the protests against the deal, which many banks see as anti-competitive and likely to drive up the cost of settlement by restricting choice.

It began transferring assets held with Clearsteam and called for the creation of a single regulated pan-European clearing and settlement organization independent of any stock exchange, the so-called "horizontal" model. "A horizontal approach to trading, clearing and settlement activities will increase efficiencies and save costs Europe-wide. UBS firmly believes its vision is in the best interests of its customers, the group itself, and European capital markets," it said.

JP Morgan echoed UBS's concerns. The US investment bank has been switching its assets to Clearstream's rival Euroclear since last month after one of its directors resigned from the Clearstream board following a row about the vertical and horizontal models.

The London Stock Exchange said of Deutsche Börse's move: "We believe such a structure acts against the interests of market participants."

Deutsche Börse said other banks, including Barclays, Citigroup and ING, were backing the deal.