Exclusive: EMCF and EuroCCP in merger talks

By Luke Jeffs

LONDON (BestGrowthStock) – Two fledgling European clearing houses, EMCF and EuroCCP, are in merger talks as they face the prospect of increasing competition from larger rivals, three industry sources with knowledge of the matter said.

EMCF, majority-owned by Dutch bank ABN AMRO, and EuroCCP, wholly-owned by U.S. clearing group the Depository Trust & Clearing Corporation, have been in talks about a combination for several weeks, the sources said on Thursday.

Terms of any deal remain unclear, according to the sources. But a deal linking EMCF and smaller peer EuroCCP would beef up the combined group’s share of the UK equities market, putting it on a near level footing with market leader LCH.Clearnet.

“It is pretty well known that EMCF and EuroCCP have been holding talks for a while now,” said one large client of the clearing houses.

EMCF and EuroCCP are the main firms among a new breed of pan-European clearing houses that has emerged in the past three years to support the region’s new trading platforms, known as multi-lateral trading facilities (MTFs).

EMCF clears trades executed on Europe’s two largest MTFs, Chi-X Europe and Bats Europe, which are owned by investment bank consortiums.

EuroCCP underpins Turquoise, the MTF majority-owned by the London Stock Exchange (LSE.L: ) and NYSE Euronext’s (NYX.N: ) trading platforms NYSE Arca Europe and Smartpool.

Spokeswomen for EMCF and EuroCCP and a spokesman for ABN AMRO declined to comment.

Clearing houses, also known as central counterparties (CCPs), act as guarantors for participants that trade on stock exchanges and MTFs by insuring them against loss in the event of a counterparty default, like that of Lehman Brothers in 2008.

The merger talks have emerged just three days after EMCF, EuroCCP and rivals LCH.Clearnet and Six x-clear, were told by European regulators they could move ahead with a plan to link up their systems and start competing among themselves for the first time.

European clearing firms have until now had exclusive relationships with the trading venues they clear, which has meant their trading firm members had to use the nominated clearing house for the relevant exchange or MTF.

But the plan backed by regulators this week, known as interoperability, should enable traders to consolidate their clearing business with a single provider, which should drive down their total cost of clearing and encourage competition between clearers.

European clearing incumbents also face the prospect of increased competition from the region’s largest exchange groups, including NYSE Euronext, which is building a CCP for launch in 2012, and the LSE, which has said it plans to expand its clearing capabilities.

(Editing by David Holmes and Jane Merriman)

Exclusive: EMCF and EuroCCP in merger talks