ICE Chief Sees U.S.-Europe Schism In LCH.Clearnet Battle
February 06 2009 - 4:13PM
Dow Jones News
The global financial meltdown may unravel recent efforts by
regulators to foster cross-border cooperation, according to the
chief executive of IntercontinentalExchange Inc. (ICE).
Jeffrey Sprecher, CEO of the Atlanta-based exchange, said Friday
that he sees financial regulators becoming increasingly focused on
domestic issues rather than working with foreign counterparts on
cross-border solutions, as they have in recent years.
"Over the last 60 days, the trend that's emerged regulation-wise
is a sense of nationalization, with U.S. regulators trying to
figure out U.S. problems and European regulators trying to figure
out European problems," said Sprecher.
"We need global cooperation between regulators," he said. "But
the pendulum may be swinging too far toward the national
footprint."
The provincialism Sprecher sees at work in the regulatory sphere
also extends to a potential bidding war over London-based
clearinghouse LCH.Clearnet Group Ltd., where Sprecher sees
defensive positioning by European banks and dealers as market
participants look to clear more over-the-counter trades.
U.K. inter-dealer broker Icap PLC (IAP.LN) is leading a
consortium looking to challenge a merger between LCH.Clearnet and
New York-based Depository Trust & Clearing Corp., first
announced last fall.
The merger would create the world's biggest processor and
guarantor of equity, bond and derivatives trades, and would
solidify banks' position in the clearing business as exchanges look
to internalize more of these functions - particularly in
over-the-counter markets for instruments like credit derivatives
and interest rate swaps.
"You're seeing business go from opaque, bilateral deals into
transparent, electronic trading, with the changes in the structure
of dealers and credit concerns," said Sprecher, speaking Friday at
a Credit Suisse conference. "So the London clearinghouse is a great
asset to own as these things are changing."
He would know: ICE in October moved to acquire the Clearing
Corp., a bank-backed clearinghouse based in Chicago that ICE has
incorporated into its credit derivatives clearing platform ICE US
Trust.
Sprecher, whose exchange in November transferred its clearing
business from LCH.Clearnet to ICE's own European clearinghouse,
said a big part of the debate over the London-based clearinghouse's
fate is whether it should have ties to the United States or remain
under European control.
The trans-Atlantic battle over LCH.Clearnet "plays into the
whole sense of nationalization right now," Sprecher said.
DTCC has insisted that its proposal for merging with
LCH.Clearnet would see the London clearinghouse remain under the
jurisdiction of European authorities.
The Icap-led consortium is reported to include French bank
Societe Generale (13080.FR), as well as Morgan Stanley (MS).
DTCC said Tuesday that the merger is progressing; the Icap
consortium is reportedly considering a EUR12-per-share bid, which
would top the EUR10 per share offered by DTCC.
DTCC handles the bulk of clearing services for equities and
municipal bonds in the U.S., as well as processing over-the-counter
derivatives trades. LCH.Clearnet's client base includes London
Stock Exchange PLC (LSE.LN) and units of NYSE Euronext (NYX).
-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117;
jacob.bunge@dowjones.com