London Stock Exchange injects competition into post-trade costs

The London Stock Exchange (LSE) plans to introduce a post-trade router to open up clearing services, improve stock liquidity and make algorithmic trading more viable.

Cheat Sheets

♦ Basel II
♦ MiFID
♦ Sarbanes-Oxley

The X-TRM router, operated by Monte Titoli, will allow at least four central counterparties - who act as intermediaries to market trades - to join the incumbent clearing-service provider LCH Clearnet. Its implementation was driven, in part, by the adoption of MiFID directives by the LSE.

The increased competition should drive the cost of trades down, saving users post-trade administration cost of around 35 per cent, according to an LSE spokeswoman.

She said: "Post-trade costs affect the frequency a user will trade. Reducing them should encourage liquidity in the market."

The service is targeted at high-volumes of short-term trades and will especially suit algorithmic trading, a method of automatic trading at high speed at set parameters. High volume trading models are viable when the cost per trade is cut to the absolute minimum.

The router will also allow the exchange to provide exchange-level settlement netting services, a method of calculating settlement charges based on the net of a basket of buys and sells a trader makes. At the moment the LSE offers this through a third party, Crest - the multi-currency electronic settlement system for UK and Irish securities.

Offering this service direct will provide an additional saving for traders, in terms of reduced administration costs.