Proposed Merger Between LCH.Clearnet and DTCC Not Proceeding
DTCC to Seek Other Strategic Alternatives
The Depository Trust & Clearing Corporation (DTCC) and LCH.Clearnet Group, Ltd. have been working toward completing the due diligence necessary to finalize an agreement for their proposed merger since the announcement of a Heads of Terms in October 2008. In December 2008, LCH.Clearnet terminated the exclusivity agreement to permit it to enter into dialogue with another party. DTCC’s intent, however, was that the merger as envisioned would still be consummated and accordingly, DTCC continued to complete its due diligence on a non-exclusive basis.
DTCC has continually communicated its desire to complete a successful merger to both the management and to the Board of Directors of LCH.Clearnet. However, LCH.Clearnet has not agreed on a basis for consummating the proposed merger with DTCC and, after consultation with our Board of Directors, regrettably DTCC sees no choice but to pursue other strategic alternatives to develop seamless transatlantic clearing services to support the needs of our customers and the industry.
DTCC continues to believe that its proposed merger with LCH.Clearnet would have delivered the broadest mix of tangible clearing capabilities and potential IT synergies to support trading across multiple asset classes.
DTCC continues to have a high regard for our colleagues at LCH.Clearnet and we hope there will be opportunities in the future where our organizations will be able to collaborate.
Comments
Deal's off between DTCC & LCH.Clearnet that’s really bad news!
One of the best bits of good news last year found in a gloom laden industry was that the world’s largest clearing house was to merge with one of European largest clearing houses. The opportunity to consolidate international and domestic clearing between the USA and Europe as it turned out was unfortunately too good to be true. As the financial crisis will require Capital Markets to go through some considerable restructuring and by putting two clearers together, the costs and risks in the international securities markets would have been greatly reduced. Put quite simply more of the worlds assets would have been condensed in one bucket allowing for greater cross margining of international positions and more efficient and faster settlement.
Those organisations and Governments charged with monitoring and protecting the investor and the greater public at large would have had a clearer picture of the movement of assets and would have been able to put in place remedial actions, if there appeared to be an imbalance emerging. Regulators from both the USA and Europe could have peered into the merged basket and been able to gain a better picture of the activities of their regulated firms.
It would have become feasible that trades dealt on NYSE Euronext and the LSE and not to say the least, a number of the MTFs would have been tied together though the merged clearing house. Who knows this could have triggered even further clearing house consolidation?
Mergers are extremely difficult things to achieve successfully without spilling some blood on the carpet. No doubt noses would have been put out of place and some humble pie would have had to be eaten. My guess is the pie was too large for LCH.Clearnet and they pulled the plug. Or could there be another suitor entering the game? I think this is more than likely after LCH.Clearnet removed the exclusivity aspect of the DTCC deal. However, whoever they may do a deal with (and let’s hope it is not a bank, or a consortium of banks) that would really put the ‘fox in the chicken coup’ as it would be somewhat disappointing for the industry at large and all those wishing for significant changes to the international market structures.
Gary Wright, C.E.O. B.I.S.S. Research
Gary Wright, is an industry analyst and ceo of B.I.S.S. Research, a research firm and benchmarking service for the financial industry.