EU Brings Clearing In-House Amid Push to Reduce Reliance on London

Formed by the merger of several European Union (EU) stock exchanges at the turn of the 21st century, Euronext can trace its origins back to some of the world’s first bourses, formed in Bruges, Antwerp and Amsterdam between the 13th and 17th centuries.

In that light, it has a heritage that predates the likes of Nasdaq and the New York Stock Exchange (NYSE) by several hundred years. Even the London Stock Exchange Group (LSEG) pales in comparison, with the U.K. exchange only founded in 1801.

Incidentally, that year also witnessed the inception of the Brussels Stock Exchange, which together with its peers in Amsterdam and Paris would unite to create Euronext much later in 2002. Since then, exchanges in Dublin, Lisbon, Oslo and Milan have joined the club.

To further strengthen the pan-European stock exchange, Euronext, which has long relied on LSEG’s clearing house LCH to clear trades in Paris, announced in a Q3 earnings statement earlier this month that customers will be able to clear all share trades at its Italian arm from the end of 2023. Derivatives clearing on the platform will follow in 2024.

The latest member of the Euronext family, Milan’s Borsa Italiana was acquired by LSEG last year as part of the latter’s efforts to gain regulatory approval for its $27 billion purchase of data provider Refinitiv. As part of that deal, Euronext gained the multiasset clearing house CC&G, thus significantly enhancing its in-house clearing ability.

After years of various acquisitions, mergers and spinoffs, Euronext has today consolidated its place as an EU-focused market operator which is increasingly independent of LSEG and its former owner Intercontinental Exchange (ICE), operator of the NYSE.

As part of the strategic plan, the bourse operator’s wholly owned subsidiary Euronext Clearing will become the “clearing house of choice” for all its exchanges, the group’s CEO Stéphane Boujnah said in the earnings statement.

To understand the significance of the move, it pays to consider the group’s clearing income from the third quarter during which Euronext Clearing generated €10.5 million. In comparison, the company raised €17.1 million from just an 11.1% stake in LCH, indicating that LSEG took the majority of the clearing revenue from trades on the Paris exchange.

London’s Declining Influence in European Market Trading

The migration of clearing activity to a wholly owned subsidiary of Euronext is the latest chapter in what has been decadeslong work to foster pan-European collaboration and harmonize market trading within the EU.

And while LSEG was once a valued partner in that undertaking, since Brexit, the EU has been at pains to disentangle its critical economic infrastructure from the City of London.

Read more: What Will London’s Place Be in the Future of Global Clearing?

Even before Brexit, central banks in the eurozone were calling for euro clearing to be brought in-house — calls that have grown louder in recent years.

With the support of EU officials, the bloc’s clearing agencies are increasingly growing their share of the market for equities, bonds and derivatives clearing in euros, which LCH still dominates.

However, data from Clarus suggests that the German clearing house Eurex has grown its market share in recent years. And with the latest moves by Euronext, LCH will soon face another competitor in the space.

As Boujnah is reported to have said last year, the decision to invest in CC&G to make it a pan-European clearer was partly driven by Euronext’s ambition to expand in derivatives.

“We believe clients want an alternative to Eurex everywhere and not only in the limited number of derivative products we are selling in France and the Netherlands. We want to be a proactive alternative to Eurex. That is a clear ambition and not being dependent on a supplier is going to be an accelerator for us to develop our derivatives strategy,” he told Global Investor.

Ultimately, by growing its clearing capacity, Euronext is establishing itself as an end-to-end trade facilitator, further streamlining the process of listing and trading on its EU exchanges.

The growing consolidation of market technology and decreased dependence on LSEG comes at a time when some of the markets Euronext enables are also outperforming the U.K. stock market.

This month, Bloomberg reported that Britain’s stock market has lost its position as Europe’s most-valued, with France taking the top spot in the wake of a weak pound and the U.K. economy officially entering a recession.

The data suggest that the combined value of LSE-listed companies now sits at around $2.821 trillion while those listed on Euronext Paris are worth slightly higher at around $2.823 trillion. This marks a significant reversal of fortunes for the LSE, which was worth over a trillion dollars more than its French rival in 2016.

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