London Stock Exchange to shell out £384m for larger stake in clearing house LCH

The London Stock Exchange is set to shell out 438 million euro (£384 million) to up its stake in British clearing house LCH despite uncertainty over the regulation of euro clearing contracts post-Brexit.

The group said on Friday that it plans to acquire an additional stake of up to 15.1% in the business, bringing its total holding to over 80%.

Chief executive David Schwimmer said the move reflects the group’s “continued confidence in LCH’s opportunities for further growth as it develops its business in partnership with its customers”.

The investment comes amid uncertainty surrounding EU regulations around post-Brexit euro clearing – a multibillion-pound market which settles business and trade conducted in EU currency.

The European Commission last year put forward proposals which would impose stricter supervision of clearing houses by EU central banks and the European Securities and Markets Authority (ESMA), and in some cases force bigger operations to move business within EU borders.

It would mean fragmenting the concentration of euro clearing in London.

A London Stock Exchange Group (LSEG) spokesman confirmed that LCH Limited is tentatively planning to apply for third party recognition in order to continue to participate in euro clearing but remain in the UK capital.

The LSEG also released third quarter earnings on Friday which showed a 5% rise in third-quarter reported revenue to £464 million and an 8% jump in total income to £522 million.

LCH itself saw income rise 15% thanks to growth in revenues from over the counter (OTC) clearing.

The group’s information services business also bolstered overall income, with division revenues rising 17%.

Mr Schwimmer said: “The Q3 results show continued momentum across the group, reflecting another period of operational execution and investment in the business.

“Information Services and LCH both delivered good year-on-year growth.”

He added: “Since I joined LSEG in August my initial impressions of the Group’s strengths have been reinforced as I have spent time with our businesses and met with key stakeholders.

“The Group has world-class assets, a strong financial position and a proven strategic approach.

“As today’s results show, we have a great platform from which to grow and develop further opportunities as we navigate the evolving economic and regulatory landscape ahead.”

Mr Schwimmer – a Goldman Sachs veteran – was appointed as LSEG’s boss earlier this year following the controversial exit of his predecessor Xavier Rolet.

Mr Rolet held the LSE’s top job for more than eight years, during which time the LSE has seen its stock market value soar from £800 million to nearly £14 billion amid a string of acquisitions.

However, his tenure was marred by a failed £21 billion merger with German rival Deutsche Borse after it was blocked by the European Commission in March – marking the third attempt at a tie up between the two companies after setbacks in 2000 and 2005.

Chairman Donald Brydon was later the subject of a shareholder attempt to oust him in December over the decision to remove Mr Rolet.

While Mr Brydon survived, he said he will not seek re-election in 2019.