Anticipated merger of Banque Centrale de Compensation SA and London Clearing House Ltd

Affected market: Financial services

No. ME/1265/03

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction and the assessment.

The OFT's decision on reference under section 33 given on 11 August 2003

PARTIES

Banque Centrale de Compensation SA (Clearnet) is active in the provision of central counterparty (CCP) clearing services for various products. Clearnet is currently owned 80.2 per cent by Euronext NV (Euronext), that in turn, owns and operates exchanges in Amsterdam, Brussels, London (LIFFE), Lisbon and Paris. In the year to end December 2002, Clearnet's UK turnover was approximately £25.3 million.

The London Clearing House Ltd (LCH) is active in the provision of CCP and other clearing services for various products in the UK. It is independently owned and governed 75 per cent by the member firms for whom it provides CCP services and 25 per cent by the three London exchanges (IPE, LIFFE and LME) whose products it clears. In the year to end October 2002, LCH's UK turnover was approximately £183.6 million.

LCH.Clearnet Group Ltd (LCH.Clearnet) has been set up as an independent UK incorporated holding company to acquire Clearnet and LCH.

TRANSACTION

It is proposed that LCH.Clearnet will acquire 100 per cent of each of Clearnet and LCH.  LCH.Clearnet will be owned 45.1 per cent by users, 41.5 per cent by Euronext, 9.8 per cent by Euroclear, 2.7 per cent by LME and 0.9 per cent by IPE. Initially Clearnet and LCH will remain distinct from each other, but be integrated in phases during the next three to four years.

This is a proposed transaction. It was announced on 25 June 2003. The 30-day statutory deadline is 11 August 2003.

ASSESSMENT

The transaction qualifies in respect of the share of supply test of the Act. The parties overlap in the provision of CCP clearing services in Europe.

The lack of competition between the parties for CCP clearing services on-exchange and the limited use of such services off-exchange implies that the merger is unlikely to have a significant impact on horizontal competition.  Notwithstanding third party concerns, there appears to be no strong incentive on the part of the merged entity to allow Euronext to influence strategic decisions in its favour.  A complex governance structure also limits Euronext's ability to discriminate against rival exchanges via its shareholding or position on the board.  Moreover, the governance structure safeguards users and exchanges interests.

The merger does not appear to result in a substantial lessening of competition within a market or markets in the United Kingdom for goods or services.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

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