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Clearing systems: Competition starts clearly

The main clearing houses in Europe have had a busy few years.

As well as slashing tariffs by about 50% over the past two years, they have been trying to get their systems to work with each other, motivated by the threat of legislation. More recently, however, they’ve taken the bold move of writing letters of intent to every major exchange in Europe to offer a competing clearing service.

The London Stock Exchange is the first exchange in Europe to announce its plans to offer users a choice of clearing houses. According to the LSE, at least four central counterparties (CCP) are expected to enter the UK market to compete against the incumbent LCH Clearnet. In order to facilitate competition between the clearing houses, the LSE has announced plans to introduce a routing facility to enable clients to send their orders to the clearer of their choice, after execution on the exchange.

The X-TRM router, as it will be called, will facilitate competition between the clearing houses by eliminating the need to carry out reconciliation work between the CCPs on a bilateral basis. In addition, the router will provide exchange-level netting services, reducing the total amount of trades needed to be sent to the clearing houses, a move that the LSE estimates could help users reduce their post-trade costs by 35%, equating to an annual saving of at least £25 million.

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