Many people will be aware of the LCH, and the services provided but are unlikely to know it has a history dating back to 1888. The company is now 82.61% owned by the London Stock Exchange Group and one of the largest clearinghouses in the world, offering clearing services across the globe. 

The merger between LCH and French-based Clearnet in 2003 took the company to a different level. So, where did LCH emerge from, and what does it do?

 

London Clearing House history

Like many established clearing services, the company can trace its origins back to the commodities market. Initially known as the London Produce Clearing House, the company was formed back in 1888 to clear commodity contracts in London. Ironically, bearing in mind it is now majority-owned by the London Stock Exchange, the shares were initially in public ownership and listed on the London Stock Exchange.

The company changed hands in 1951, 1980, and 1992 before reverting to majority ownership by the clearing services membership. The LME (London Metal Exchange), IPE (International Petroleum Exchange) and LIFFE (London International Financial Futures and Options Exchange) also took minority stakes. 

Fast forward to 2003, and we saw the emergence of a clearing services powerhouse when the company merged with French-based Clearnet SA.

 

Clearnet SA history

While the history of Clearnet SA does not go as far back as LCH, there are similarities. The group was initially set up under the name Banque Centrale de Compensation SA in 1969, also offering clearing services to commodity markets, in Paris. In a similar fashion to LCH, the company changed hands numerous times before eventually merging with Amsterdam's Euronext in 2001. 

In 2003, the company confirmed a merger with LCH, which saw the emergence of a substantial global clearing services operation. 

 

Post-merger activity

While initially known as LCH Clearnet Group, this was shortened to LCH in 2016 but not before a significant shakeup of the clearing services giant. Originally, membership of the merged group was made up of:-
 
  • Clearing members 45.1%
  • Exchanges 45.1%
  • Euroclear 9.8%
The ownership structure was revised in 2007, and in 2009, the final changes were made, resulting in shareholdings of:-
 
  • Clearing members 82.85% 
  • Exchanges 17.15%
In 2012 the London Stock Exchange Group received enough support to buy a 60% stake in LCH, giving it majority control of one of the world’s largest clearing services companies. Further expansion saw greater exposure to the US markets, and the London Stock Exchange Group increased its stake to 82.61% in 2013.

 

Clearing services provided

While many people focus on the equity clearing services offered by LCH, this is just the tip of the iceberg. Since its inception in the 1880s, the company has become a giant in the industry. LCH now provides clearing services in an array of markets such as:-
 
  • Commodities
  • Credit default swaps
  • Derivatives
  • Energy
  • Equities
  • Centrally cleared CFDs
  • Fixed-income
  • Freight
  • Container freight
  • Interest rate swaps
  • Foreign exchange
As a clearing services provider, LCH is placed between buyers and sellers, assuming counterparty risk and maintaining market integrity. Accordingly, all members of the LCH have various minimum requirements they must adhere to as well as collateral requirements for trades they have executed.

 

Maintaining market integrity

As a member of the London Stock Exchange since 2009, Global Investment Strategy UK is well aware of the importance of clearing services to maintain market integrity. As you can see from the above information, the LCH has a history that goes back more than a hundred years and priceless experience. The company has changed hands and restructured numerous times, reflecting developing market conditions and expanding regulatory requirements while cementing its position as a leading global clearing services provider.


 

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