Euronext revives merger talks with the London Clearing House

Euronext, the pan-European stock exchange, is in talks on further extending its influence in London just months after buying the London derivatives exchange Liffe.

Talks have resumed between the Paris-based exchange's Clearnet unit and the London Clearing House, which operates a key part of the equity trading infrastructure. "They are in fairly advanced stages of discussion, but valuation is still one of the issues which prevents them from making an announcement," a source close to the deal said yesterday.

A combination of the two would create the clout to slash cross-border trading costs and trigger more shake-ups in the equity trading industry.

LCH and Clearnet are central counterparties (CCPs), which provide an interface between buyers and sellers to clear trades anonymously and guarantee completion of a trade when one side defaults.

"The corporate structure is still to be decided, such as who gets what position and which platform will be used. They have advanced further than they have in the past in terms of doing a potential deal, and the conclusion is that they will get there in the summer," the source added.

LCH had no comment, and Euronext, which owns 80 per cent of Clearnet, was unable to comment immediately because of a holiday in France.

A deal would give Euronext greater exposure to the London securities market, Europe's most important, and would help Euronext's efforts to woo the London Stock Exchange. It would also force the rival Deutsche Börse to think hard about the future of its own CCP, Eurex Clearing, which had previously been in three-way merger talks with Clearnet and LCH.

Talks between Clearnet and LCH have been revived several times in the past two years, but the catalyst for the latest discussions was Euronext's acquisition last year of Liffe, which owns 17 per cent of LCH.

However, the ownership structure of a merged group and the choice of legal jurisdiction could prove a sticking point. LCH is 75 per cent owned by market users like banks, the balance held by Liffe, the London Metal Exchange and International Petroleum Exchange.