EUROPE - The tie-up between settlement houses Belgian Euroclear Group and UK-based Crestco has promised to cut market costs, by as much as 90% in some cases.
The deal, largely touted as a merger, will create Europe’s biggest settlement system which will cover around 60% of all European trades of the Eurotop 300. Institutions have welcomed the move as a model for further market consolidation.
Last year both firms settled a combined 120 million transactions worth over EUR225trn. Additionally, they held more than EUR10.8trn of assets in custody.
According to a joint statement from both firms, the new deal could mean cross-border settlement tariffs for trades in Belgian, Dutch, French, Irish and UK securities reduced by more than 90% to domestic levels over time.
Chris Tupker will remain as chairman of Euroeclear and Euroclear Bank. Nigel Wicks, currently chairman of CRESTCo, will become deputy chairman of Euroclear and Euroclear Bank. He will also become the first chairman of the business model implementation committee of the board of Euroclear Bank. Pierre Francotte will remain as chief executive officer of Euroclear Bank. Hugh Simpson will continue as chief executive of CRESTCo and will become an executive director of the board of Euroclear Bank and a member of the management committee of the board of Euroclear Bank.
The London Stock Exchange welcomed the move. Clara Furse, Chief Executive of the Exchange, said: This deal is very good news for our customers [reducing] the cost of settlement and, by extension, the cost of capital.
“Reductions in the cost of cross-border settlement that will flow from this merger should stimulate greater cross-border trading, which will help to remove one of the main barriers to freer competition between exchanges in Europe.
Under the terms of the agreement, CRESTCo shareholders will receive 30.15 Euroclear ordinary shares for each CRESTCo share held, representing in aggregate 19% of the fully diluted equity share capital of Euroclear following completion of the merger. They will receive a further £13m rebate depending on their usage of CrestCo.
The new group expects to deliver a single settlement engine allowing customers to work with a single securities account for all securities serviced by the new group by 2005. From 2008, the plan is for customers to be able to access all group securities through one securities account, with one interface, one payment relationship and a choice of service levels and tariffs.
Commenting on the announcement, Chris Tupker chairman of Euroclear and Euroclear Bank said: “While the new group will service the major trading and clearing platforms of Europe, our conviction that the settlement function must remain user governed and not controlled by stock exchanges remains as strong as ever.”
Nigel Wicks, chairman of CRESTCo, said: The Merger is unique – not only is it one of the largest mergers of settlement systems in the world, it also creates a radical new model for the development of settlement services in Europe. This is a giant step towards the delivery of an integrated European capital market.
By Madhu Kalia
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