To terminate its LCH.Clearnet clearing contract the London-based derivatives exchange owned by Nyse Euronext will make a one-time payment of EUR260 million.
Liffe will become a self-clearing Recognised Investment Exchange, but will still outsource certain clearing functions to LCH.Clearnet. The new clearing arrangement will be known as LiffeClear.
Nyse Euronext says it expects the transaction to have a positive impact on earnings from 2009. Hugh Freedberg, group executive vice president and head of global derivatives at Nyse Euronext, said: "For Nyse Euronext, LiffeClear will enable competition against Liffe’s vertically-integrated international peers on a more level playing field. For LCH.Clearnet, it means no disruption to its default backing arrangements and reaffirms its long-term relationship with Liffe."
Under the LiffeClear arrangements, Liffe will become central counterparty to its own contracts. The clearing guarantee arrangements and related risk functions will be outsourced to LCH.Clearnet, which will remain responsible for defaulting member positions, applying LCH.Clearnet regulation and resources to the resolution of such a default.
LiffeClear will enable Nyse Euronext, though Liffe, to enter the clearing business and allow direct investment in clearing technology and services. In addition, control over its clearing operations will position Liffe to collaborate closely with Nyse Liffe, the new Nyse Euronext US futures affiliate that began trading last month. The affiliate currently has a clearing arrangement for its precious metal contracts with CME Group, which runs through the first quarter of 2009.
Commencement of LiffeClear operations remains subject to FSA’s approval.