LSE opens up clearing

The London Stock Exchange is set to use the post-trade router acquired along with the Bourse Italia to open up its Central Counter Party (CCP) relationships in London.

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The exchange currently has a deal to forward trades to LCH.Clearnet for clearing. LCH.Clearnet will be joined by rival clearing house X-Clear as a provider of CCP services to LSE members.

The router will allow trades to be channelled to either CCP provider based on the trader's preference, forcing the two companies to compete on price.

According to an LSE spokeswoman, the opening up of this stage of the trade process is instrumental in the introduction of Contracts for Difference (CFDs) in the early part of 2009.

CFDs allow a buyer to purchase a share derivative and speculate on price movements. The seller pays the buyer the difference between the asset value of the share and the price of the share at the time of striking the contract. The intention is that this will be a positive amount for the buyer but this may not always be the case.

The LSE intends to standardise these contracts across the exchange using the dual CCP provider model.

According to the LSE spokeswoman, offering CFDs will support price liquidity in the market.

She said: "The basic strategy is to offer options that lower the cost of trading on our markets. We hope this will enhance the volumes of trades on the exchange."