The UK's Competition Commission is looking at the introduction of interoperable central counterparties as a means to address the anti-competitive effect of a future merger of the LSE with either Euronext or Deutsche Börse.
The Commission is currently investigating takeover bids from Deutsche Börse or Euronext for LSE and said in July that any acquisition of the UK market would "substantially lessen competition" by requiring customers to use their respective clearing services - Deutsche Börse owns clearing services provider Eurex Clearing, while Euronext is the biggest shareholder in LCH Clearnet, the current clearing services provider for the LSE.
But in its latest notice, the CC says this may be remedied by removing the dependence of a new entrant on the incumbent central counterparty. The regulator says this could be done by ensuring there are no exclusive arrangements for the provision of CCP services to LSE and that services are provided by at least two CCPs that have adequate technical and risk management arrangements in place to support and deliver margin fungibility between them and across trading platforms.
Furthermore the Commission says the selected CCPs should be able to offer settlement netting across the trading platforms, and LSE members have the ability to choose one of the selected CCPs as their preferred provider. Also, access to post-trade facilities should not be conditional upon the execution of trade on the associated trading platform.
In its response to the July ruling - Euronext has offered to cut its stake in the clearing house LCH.Clearnet, reduce its voting rights from 25% to 15% and halve the number of directors it is allows to appoint to two, in a bid to gain approval for its takeover bid.
But in its own posting, the LSE says any potential bidder should be required to sell off their clearing businesses.
The CC is expected to publish its report into both the Euronext and Deutsche Börse takeover bids in November.