FN: Liddell says OTC is top priority for LCH.Clearnet

01 April 2011

Chief executive, Roger Liddell, says the over-the-counter derivatives market is now the "number one" priority for LCH.Clearnet, as the Anglo-French clearing house comes to grips with major structural shifts in the European trading landscape that left it battered and bruised in 2010.

Roger Liddell, chief executive of LCH.Clearnet, said that the commoditisation and decreasing profitability of the cash equities market has forced the firm to refocus on providing clearing services to the over-the-counter derivatives market.

He said: "The number one priority for us right now is developing our OTC clearing services and in expanding our OTC clearing product set. That is now a huge focus for us, and it's definitely where we can add the most value. The equity markets are important and we continue to support them, but the whole structure of the equities market is changing and there are fewer opportunities for growth compared with other markets such as OTC. Equities are now commoditised.”

In addition to the diminishing value of the European cash equities industry, the Anglo-French clearer is also feeling the knock-on effects of changes in the European exchange space -- primarily the move by many exchange groups to develop their own clearing capabilities in order to capture the clearing revenues associated with trading on their own markets.

As a result, LCH.Clearnet last year lost a key customer in the form of NYSE-Euronext's derivatives arm Liffe, which in May announced it would be severing its relationship with LCH.Clearnet in order to build its own clearing house.

Boosting its share of the OTC derivatives clearing market will not merely allow LCH.Clearnet to compensate for a decline in equities clearing revenues, but will also help dramatically boost the income that LCH.Clearnet makes on the collateral it holds to secure derivative trades, which also fell 23% last year.

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