London Stock Exchange to Establish Luxembourg Central Securities Depositary

The London Stock Exchange (LSE) has announced plans to establish a central securities depositary (CSD) in Luxembourg, building on its existing Italian CSD and following previously-outlined plans to compete more aggressively in settlement.

The LSE added that JP Morgan will provide it with settlement, custody and asset servicing as part of its international collateral management business.

A statement said the Luxembourg CSD will “allow the group to broaden its customer base as it expands its custody and settlement services”. It will also support clients as the European Market Infrastructure Regulation (EMIR) is introduced across the region.

EMIR will require the majority of over-the-counter (OTC) derivatives trades to be cleared through a central counterparty (CCP), who are required to hold collateral assets as an insurance policy against any defaults at a securities settlement system, such as a CSD, where possible.

The new CSD is regarded as a potential rival to Deutsche Boerse’s Clearstream service and Euroclear and builds on the existing structure of the LSE’s Italian CSD, Monte Titoli, which is the third-largest in Europe. It is expected to begin operations in the first half of 2014.

JP Morgan said it will use the LSE as its CSD in its strategy for Emir. The agreement to use the CSD “enhances JP Morgan’s collateral management service,” according to a statement from the group.

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