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Global Exchanges Close In On LCH Deal

(c) Sky News 2013

The clearing house responsible for processing billions of UK financial trades will in the coming days unveil a £300m capital-raising that is expected to include an increased shareholding being acquired by the operator of New York's leading technology exchange.

I understand that LCH.Clearnet, an important component in the City's financial architecture, is in the advanced stages of finalising the fundraising as part of a takeover deal led by the London Stock Exchange Group (LSE).

The participants could miss a self-imposed deadline of tomorrow, according to people close to the situation, but they are "on the brink of a deal".

The transaction was not yet finalised on Wednesday afternoon but is expected to involve the LSE taking a stake of up to 60% in LCH, with the Singaporean exchange operator SGX (SES: E1:S68.SI - news) potentially acquiring a minority shareholding.

Nasdaq OMX (NasdaqGS: NDAQ - news) , owner of the Nasdaq bourse, is in talks to increase its small minority investment in the business. People close to LCH said that SGX could yet withdraw from the deal.

The LSE has revised the terms of its offer following regulatory changes which require clearing houses to hold more capital. Clearing houses act as middlemen in asset trades, ensuring their completion in the event of a default.

Last month, the LSE said in a statement that it was extending a deadline to finalise an agreement with LCH until tomorrow, and people familiar with the talks said the parties were unlikely to require a further extension.

LCH describes itself as "the leading independent central counterparty group in Europe ... [and] clears a broad range of asset classes including - securities, exchange traded derivatives, energy, freight, interbank interest rate swaps and euro and sterling denominated bonds and repos".

These services are becoming increasingly-intensively regulated but their ownership is also being sought after as exchange operators seek to combat the fallout from declining equity trading activity.

The revised offer for LCH will come at a time of frenetic activity in the exchanges sector as its major players grapple for greater international scale.

Earlier this week, it was reported that CME, the US derivatives exchange operator, had held tentative discussions about acquiring the German-based Deutsche Borse.

Elsewhere, Nasdaq's parent has had preliminary discussions about taking itself private with backing from Carlyle Group, the buyout firm, and Intercontinental Exchange is in the process of buying NYSE Euronext (NYSE: NYX - news) for more than $8bn (£5.28bn).

The LSE and LCH declined to comment.