The Depository Trust & Clearing Corporation (DTCC) and LCH.Clearnet Group (LCH.Clearnet) have signed an agreement to merge the two companies. The merged company would create the world's largest clearing house, which would operate a user-owned, user-governed model, with LCH.Clearnet moving to an at-cost based structure comparable to DTCC's within three years.
It is anticipated that the proposed merger will result in significant synergies and efficiency gains, largely derived from technology savings, as well as significantly enhanced economies of scale. In addition, for the first time both the U.S. and Europe would be supported by a common infrastructure. As a result, the new company expects further reductions in the costs of LCH.Clearnet's and DTCC's services, most notably for equities in both Europe and America.
The combined group would focus on maximising value to users while ensuring the highest standards of risk management, according to a press release. The new company would cover such asset classes as equities, fixed income instruments, exchange-traded derivatives and commodities, mutual funds, annuities and OTC products such as interest rate swaps, credit default swaps, carbon emissions and freight contracts.
As a result of the transaction, LCH.Clearnet shareholders would receive total consideration of up to 739 million (10 a share), the majority of which would be funded through LCH.Clearnet's revenue.
Euroclear, currently the largest shareholder in LCH.Clearnet, with a holding of 15.8%, intends to support the transaction in principle and remain a shareholder of LCH.Clearnet HoldCo, and to thereby cement a strong partnership in European post-trade solutions.