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9 March 2012

LONDON STOCK EXCHANGE GROUP PLC TO ACQUIRE MAJORITY STAKE IN LCH.CLEARNET GROUP LIMITED

LEADING GLOBAL PARTNERSHIP IN MULTI-ASSET, MULTI-VENUE CLEARING AND RISK MANAGEMENT SERVICES

• Strongly positions Enlarged Group for long-term, leading role in global market infrastructure, in partnership with customers
• Combines LCH.Clearnet’s open, horizontal model with LSEG’s proven track record of customer partnerships and reinforces LCH.Clearnet’s stakeholder governance model
• Reinforces LSEG’s diversification strategy and enhances portfolio of leading global brands, products and services to drive growth
• Builds on the combined expertise of LCH.Clearnet and LSEG in owning and successfully developing regulated, systemically important businesses across multiple geographies
• Accepting LCH.Clearnet Shareholders will receive €20 per LCH.Clearnet Share acquired, comprising the Offer of €19 per LCH.Clearnet Share in cash plus €1 per LCH.Clearnet Share from the Special Dividend (payable by LCH.Clearnet in 5 years, subject to deductions)
• LCH.Clearnet total implied value of €813 million (£677 million), comprising total implied Offer value from LSEG of €772 million (£643 million) plus Special Dividend of €41 million (£34 million) (payable by LCH.Clearnet in 5 years, subject to deductions)
• LSEG to become majority owner of LCH.Clearnet, holding up to 60 per cent.; LCH.Clearnet Shareholders to retain at least 40 per cent.
• Maximum consideration to be paid by LSEG will be €463 million (£386 million), funded from existing resources and bank facilities
• Immediately earnings accretive for LSEG and return on invested capital is expected to exceed LSEG’s current cost of capital in the first year
• Undertakings received from LCH.Clearnet Shareholders to vote in favour of the LCH.Clearnet Resolution and to accept the Offer, representing 62.7 and up to 46.9 per cent. of LCH.Clearnet’s Issued Share Capital respectively

LCH.Clearnet Group Limited (“LCH.Clearnet”) and London Stock Exchange Group plc (“LSEG”) today announce that they have reached agreement on the terms of a recommended cash offer to be made by London Stock Exchange (C) Limited (“LSEC”), a wholly-owned subsidiary of LSEG, for LCH.Clearnet’s Issued Share Capital. On Completion, LSEG will become the majority owner of LCH.Clearnet, holding up to 60 per cent. of LCH.Clearnet’s Issued Share Capital.

Under the terms of the Transaction, accepting LCH.Clearnet Shareholders will receive €20 per LCH.Clearnet Share acquired, comprising cash consideration of €19 per LCH.Clearnet Share payable by LSEG under the Offer plus €1 per LCH.Clearnet Share from the Special Dividend payable by LCH.Clearnet (which may be reduced by the cost to LCH.Clearnet of any Relevant Claim(s)). The total implied value of LCH.Clearnet under the terms of the Transaction is €813 million (£677 million), comprising a total implied Offer value of €772 million (£643 million) and assuming €41 million (£34 million) paid under the Special Dividend. The maximum consideration to be paid by LSEG at Completion, assuming LSEG acquires 60 per cent. of LCH.Clearnet’s Issued Share Capital, will be €463 million (£386 million), which will be financed from existing cash resources and bank facilities.

Through this Transaction, LCH.Clearnet and LSEG will partner as a global leader in multi-asset, multi-venue clearing and risk management services, providing customers with an enhanced product and service offering.

Commenting on today’s announcement,

Chris Gibson-Smith, Chairman of LSEG said:

“Strategically, structurally and financially this is a highly persuasive transaction. At a time when experience, stability and trust count for so much, we are delighted to be partnering with LCH.Clearnet as global leaders in market infrastructure. Together, we have secured the Enlarged Group’s long term role in the operation of international capital markets and we look forward to continuing to successfully deliver on our diversification strategy and to drive shareholder value.”

Jacques Aigrain, Chairman of LCH.Clearnet added:

“We are pleased to partner with LSEG which has a shared philosophy of horizontal architecture and close partnership with customers. We look forward to working together to build on our respective strengths as we seek to deliver one of the premier global multi-asset, multi-venue clearing and risk management businesses.”

Xavier Rolet, Chief Executive Officer of LSEG said:

“The Transaction will be transformative, delivering a strong, customer-focused clearing partnership between LSEG, LCH.Clearnet and our customers, the broker-dealer community. We will seek to promote greater innovation, choice and competition in the listed derivatives market through this new-style open-access clearing model, building on the successes we have already had with our existing equity and fixed income trading partnerships, Turquoise and MTS.”

Ian Axe, Chief Executive Officer of LCH.Clearnet added:

“Transforming LCH.Clearnet into a best in class international CCP will be accelerated by the partnership’s enhanced capabilities. We see significant revenue opportunities opening up as a result of both customer and regulatory demand for more efficient and more sophisticated tools to manage market risk.”

Background to and reasons for the Transaction

Regulatory change and customer demand are creating significant new opportunities for clearing and risk management services globally. The LCH.Clearnet Group enjoys a leading position as a multi-asset, multi-venue provider of clearing and risk management services and, together with the LSEG’s existing clearing operations, will ensure that the Enlarged Group is well positioned to take advantage of these opportunities.
Developing its post-trade capabilities, especially in clearing, is a key priority for the LSEG Group. This priority recognises the importance of providing customers with an efficient and attractive service offering across each stage of the trading value chain. The Transaction meets LSEG’s strategic objectives to continue to build upon its existing assets and to seek new opportunities, particularly in the post-trade arena, accelerating diversification and growth for the LSEG Group. The Transaction will enable the LSEG Group to develop its current product and service offering, broadening its international clearing capabilities and providing the LSEG Group with exciting new opportunities for innovation, including, for example, the opportunity to seek to develop a new listed fixed income derivatives business.

LCH.Clearnet has already initiated a transformation plan to increase efficiency, de-duplicate technologies and further develop its sophisticated risk and collateral management capability. LSEG is supportive of this transformation plan and expects that its own successful experience of driving cost and other efficiencies will assist LCH.Clearnet in delivering its strategy.

Background to and reasons for LCH.Clearnet’s recommendation

On 28 May 2011, LCH.Clearnet confirmed that it had received various proposals from third parties indicating an interest in pursuing some form of business combination or other cooperation with LCH.Clearnet. LSEG’s subsequent proposal combined an attractive value proposition to LCH.Clearnet Shareholders with an overall strategy supporting LCH.Clearnet’s horizontal model and the ongoing involvement of stakeholders in the governance and operations of the LCH.Clearnet Group. Taking account of all proposals received, and their key terms, including price, certainty, governance, proportion of LCH.Clearnet Shares to be acquired and strategic rationale, the LSEG transaction is considered to be the proposal most likely to be in the best interests of LCH.Clearnet Shareholders and to promote the success of LCH.Clearnet.

The LCH.Clearnet Shares are not publicly listed and the Transaction presents an attractive opportunity for LCH.Clearnet Shareholders to realise, in cash, their investment in LCH.Clearnet in respect of the LCH.Clearnet Shares which they sell under the terms of the Transaction.

The Transaction supports LCH.Clearnet’s existing strategic objective of enhancing its position as a leading global provider of multi-asset, multi-venue clearing and risk management services. At the same time, the Transaction provides a stronger foundation on which to compete effectively in the market for both listed and OTC clearing services whilst preserving LCH.Clearnet's horizontal model, balanced governance arrangements and institutionalised client participation. LSEG has committed to LCH.Clearnet’s continued adherence to the principles of an open access, horizontal multi-asset class and multi-venue clearing model and the terms of the Transaction ensure the ongoing involvement of key stakeholders in the governance and operations of the LCH.Clearnet Group.

Benefits of the Transaction

Through this Transaction, LSEG will acquire a majority stake in LCH.Clearnet to form a leading global partnership in multi-asset, multi-venue clearing and risk management services, building on both the LCH.Clearnet Group’s and the LSEG Group’s existing clearing and risk management services. Together, LCH.Clearnet and LSEG will also be better positioned to respond to the growing demand for multi-asset CCPs and the increased need for post-trade services.

Annual revenue synergies of up to €20 million (£17 million) are targeted by the end of year 3 and up to €40 million (£33 million) are targeted by the end of year 5. Total annualised cost savings from LCH.Clearnet’s strategy are expected to amount to €35.8 million (£29.8 million) by the end of 2012, of which €3.6 million (£3.0 million) has been delivered in 2011. One-off implementation costs with regard to LCH.Clearnet’s planned cost savings are estimated to be €41.4 million (£34.5 million). In addition, LCH.Clearnet and LSEG have identified incremental cost savings of €23 million (£19 million) per annum by the end of year 3 and €25 million (£21 million) by the end of year 5. One-off implementation costs with regard to these incremental cost savings are estimated to be €14 million (£12 million).

The Transaction is expected to be immediately earnings accretive for LSEG. Return on invested capital is expected to exceed LSEG’s weighted average cost of capital (WACC) in the first year, falling slightly due to the expected loss of NYSE Euronext’s business in the second year (detailed in section 15) and thereafter meets and then exceeds WACC as the Enlarged Group benefits from full synergies and growth in the Enlarged Group’s business.

This statement regarding earnings enhancement is not intended to be a profit forecast and should not be interpreted to mean that the earnings per LSEG Share for the current or future financial periods will necessarily be greater than those for the relevant preceding financial period.


Timetable and LCH.Clearnet Shareholder support

Completion is expected by the fourth quarter of 2012 and is subject to regulatory and other approvals, including anti-trust clearance. In addition, the Transaction is subject to approval by LSEG Shareholders, acceptance of the Offer in respect of a majority of LCH.Clearnet’s Issued Share Capital and LCH.Clearnet Shareholders approving the adoption of the New LCH.Clearnet Articles and the Special Dividend.

LCH.Clearnet and LSEG have received undertakings from LCH.Clearnet Shareholders to vote in favour of the LCH.Clearnet Resolution in respect of 62.7 per cent. of LCH.Clearnet’s Issued Share Capital and to accept, or procure the acceptance of, the Offer in respect of up to 46.9 per cent. of LCH.Clearnet’s Issued Share Capital. These undertakings will cease to apply in certain circumstances, as described in Appendix E.
 
This summary should be read in conjunction with the text of the attached full announcement.

Conference call & webcast details

Analyst call is at 09:00
Dial-in: +44 (0)20 3003 2666
Participants should ask to join the London Stock Exchange Group plc call
Particpants will be able to access the webcast / presentation by going to the LSEG website using the following link:
http://www.londonstockexchangegroup.com/investor-relations/investor-relations.htm

Enquiries

LSEG 
Victoria Brough
(Media) +44 (0) 20 7797 1222
Paul Froud
(Investor Relations) +44 (0) 20 7797 3322
 
Morgan Stanley
(Financial Advisers to LSEG) 
Simon Robey +44 (0) 20 7425 8000
Matthew Jarman 
Max Mesny 
 
Citi
(Financial Advisers to LSEG) 
Gilles Graham  +44 (0) 20 7986 6000
Basil Geoghegan 
 
Societe Generale
(Financial Advisers to LSEG) 
Stefan Goetz +44 (0) 20 7676 6000
Laurent Meyer 
 
Citigate Dewe Rogerson
(for media communications only) 
Patrick Donovan +44 (0) 20 7638 9571
Grant Ringshaw 
 
LCH.Clearnet 
Andrea Schlaepfer +44 (0) 20 7426 7000
 
J.P. Morgan
(Financial Advisers to LCH.Clearnet) 
Jeremy Capstick +44 (0) 20 7742 4000
Giuseppe Esposito 
 
Brunswick Group
(Communications Advisers to LCH.Clearnet) 
Gill Ackers +44 (0) 20 7404 5959
Catriona McDermott 

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Forward-looking information

This document contains forward-looking statements. These statements are based on the current expectations of the management of LCH.Clearnet and LSEG and are naturally subject to uncertainty and changes in circumstances. The forward-looking statements contained in this announcement include statements relating to the expected effects of the Transaction on the LCH.Clearnet Group and the LSEG Group and other statements other than historical facts.

Forward-looking statements include statements typically containing words such as “will”, “may”, “should”, “believe”, “intends”, “expects”, “anticipates”, “targets”, “estimates” and words of similar import, or variations or the negatives of such words. Although LCH.Clearnet and LSEG believe that the expectations reflected in such forward-looking statements are reasonable, LCH.Clearnet and LSEG can give no assurance that such expectations will prove to be correct. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include the satisfaction of the conditions to the Transaction, as well as additional factors such as: local and global political and economic conditions; unforeseen fluctuations in trading and/or clearing volumes; competition from other exchanges, clearing houses or marketplaces; changes in trading and/or clearing systems commonly relied upon by market participants; FX rate fluctuations and interest rate fluctuations (including those from any potential credit rating decline); legal or regulatory developments and changes; the outcome of any current or future litigation; the impact of any acquisitions or similar transactions; competitive products and pricing pressures; loss of existing customers; success of business and operating initiatives; failure to retain and attract qualified personnel; failure to implement strategies; and changes in the level of capital investment. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements.

Given these risks and uncertainties, recipients of this announcement should not place undue reliance on forward-looking statements as a prediction of actual results. Neither LCH.Clearnet nor LSEG nor any of their respective affiliates or representatives undertakes any obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.

This disclaimer will not exclude any liability for, or remedy in respect of, fraudulent misrepresentation.
 
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO THE SAME WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

 
For immediate release

9 March 2012

LONDON STOCK EXCHANGE GROUP PLC TO ACQUIRE MAJORITY STAKE IN LCH.CLEARNET GROUP LIMITED

LEADING GLOBAL PARTNERSHIP IN MULTI-ASSET, MULTI-VENUE CLEARING AND RISK MANAGEMENT SERVICES
 

LCH.Clearnet Group Limited (“LCH.Clearnet”) and London Stock Exchange Group plc (“LSEG”) today announce that they have reached agreement on the terms of a recommended cash offer to be made by London Stock Exchange (C) Limited (“LSEC”), a wholly-owned subsidiary of LSEG, for LCH.Clearnet’s Issued Share Capital. On Completion, LSEG will become the majority owner of LCH.Clearnet, holding up to 60 per cent. of LCH.Clearnet’s Issued Share Capital.

Under the terms of the Transaction, accepting LCH.Clearnet Shareholders will receive €20 per LCH.Clearnet Share acquired, comprising cash consideration of €19 per LCH.Clearnet Share payable by LSEG under the Offer plus €1 per LCH.Clearnet Share from the Special Dividend payable by LCH.Clearnet (which may be reduced by the cost to LCH.Clearnet of any Relevant Claim(s)). The total implied value of LCH.Clearnet under the terms of the Transaction is €813 million (£677 million), comprising a total implied Offer value of €772 million (£643 million) and assuming €41 million (£34 million) paid under the Special Dividend. The maximum consideration to be paid by LSEG at Completion, assuming LSEG acquires 60 per cent. of LCH.Clearnet’s Issued Share Capital, will be €463 million (£386 million), which will be financed from existing cash resources and bank facilities.

Through this Transaction, LCH.Clearnet and LSEG will partner as a global leader in multi-asset, multi-venue clearing and risk management services, providing customers with an enhanced product and service offering.

1. Key terms and structure

The Transaction will be implemented by a recommended cash offer to be made by LSEC, a wholly-owned subsidiary of LSEG, for LCH.Clearnet’s Issued Share Capital. On Completion, LSEG will own between 50 per cent. plus one LCH.Clearnet Share of the issued share capital of LCH.Clearnet as at Completion and 60 per cent. of LCH.Clearnet’s Issued Share Capital. The balance of LCH.Clearnet Shares not held by LSEG will be held by existing LCH.Clearnet Shareholders which retain some or all of their LCH.Clearnet Shares and any new Venues that have been invited by LSEG (with the approval of LCH.Clearnet) to become LCH.Clearnet Shareholders.
Under the terms of the Transaction, accepting LCH.Clearnet Shareholders will receive €20 per LCH.Clearnet Share acquired, comprising cash consideration of €19 per LCH.Clearnet Share payable by LSEG under the Offer plus €1 per LCH.Clearnet Share from the Special Dividend payable by LCH.Clearnet (which may be reduced by the cost of any Relevant Claim(s)).

Following Completion, LCH.Clearnet’s current Non-Executive Chairman, Jacques Aigrain, and current Chief Executive Officer, Ian Axe, will remain in their roles and Ian Axe will also be invited to join LSEG’s executive committee.

2. Background to and reasons for the Transaction

Developing its post-trade capabilities, especially in clearing, is a key priority for the LSEG Group. This priority recognises the importance of providing customers with an efficient and attractive service offering across each stage of the trading value chain. The Transaction meets LSEG’s strategic objective to continue to build upon its existing assets and to seek new opportunities, particularly in the post-trade arena, accelerating diversification and growth for the LSEG Group.
The financial services industry and, in particular, the capital markets infrastructure sector, continues to evolve rapidly, demonstrating high growth in a number of specific areas. Ongoing regulatory developments and an industry increasingly focused on transparency and risk management are driving important structural changes in the sector, including heightened customer demand for post-trade services and the expected new regulatory requirements for central clearing, including in OTC derivatives. These developments are occurring in the context of strong historical growth in volumes in listed and OTC derivatives: specifically, trading volumes in European listed equity and fixed income derivatives grew by circa 10 per cent. between 2005 and 2010; and trading volumes in global OTC derivatives grew by circa 20 per cent. (CAGR) in terms of notional outstanding value between 1998 and 2011. These dynamics present significant potential opportunities for the LSEG Group, in line with its stated ambition to diversify the LSEG Group’s activities.
The Transaction will enable the LSEG Group to develop its current product and service offering, broadening the LSEG Group’s international clearing capabilities and in particular allowing the LSEG Group to:

• develop deeper relationships with customers and other venues around the world through partnership, prioritisation of product development, innovation and responsiveness to customer needs;
• secure a long-term, leading role in important pan-European market infrastructure;
• provide strong, competitive, customer-focused European clearing operations, building on the existing clearing and risk management services of both the LCH.Clearnet Group and the LSEG Group;
• form a leading global partnership in multi-asset, multi-venue clearing and risk management services, providing customers with operational and capital efficiencies;
• with the support of the LCH.Clearnet Group’s customers, take advantage of global growth opportunities, including the growing importance of multi-asset CCPs, the increased need for post-trade services (including in OTC derivatives) and the general market and regulatory trends for enhanced risk management; and
• benefit from exciting new opportunities for innovation, including, for example, the opportunity to seek to develop a new listed fixed income derivatives business.
In addition, following the Transaction, LCH.Clearnet and LSEG intend to develop LCH.Clearnet's global strategy and they are considering the potential for future partnering arrangements with a number of trading venues and market infrastructure providers. It is possible that these arrangements may involve an issue of LCH.Clearnet Shares (within the LCH.Clearnet Directors' current standing authority to allot up to five per cent. of LCH.Clearnet's Issued Share Capital) and/or inviting such a partner to propose a director for appointment to the LCH.Clearnet Board. From Completion, it is expected that any director so appointed would be a Venue Director.
3. Background to and reasons for LCH.Clearnet’s recommendation

The Transaction presents an attractive opportunity for LCH.Clearnet Shareholders to realise, in cash, their investment in LCH.Clearnet in respect of the LCH.Clearnet Shares which they sell under the Offer. At the same time, the Transaction provides a stronger foundation on which to compete effectively in the market for both listed and OTC clearing services, whilst preserving LCH.Clearnet's horizontal model, balanced governance arrangements and institutionalised client participation.
In recommending the Transaction, the LCH.Clearnet Recommending Directors took into account, inter alia, the following factors:
• on 28 May 2011, LCH.Clearnet confirmed that it had received various proposals from third parties indicating an interest in pursuing some form of business combination or other cooperation with LCH.Clearnet. LSEG’s subsequent proposal combined an attractive value proposition to LCH.Clearnet Shareholders with an overall strategy supporting LCH.Clearnet’s horizontal model and the ongoing involvement of stakeholders in the governance and operations of the LCH.Clearnet Group. Taking account of all proposals received, and their key terms, including price, certainty, governance, proportion of LCH.Clearnet Shares to be acquired and strategic rationale, the LSEG transaction is considered to be the proposal most likely to be in the best interests of LCH.Clearnet Shareholders and to promote the success of LCH.Clearnet;

• the LCH.Clearnet Shares are not publicly listed and the Transaction presents an attractive opportunity for LCH.Clearnet Shareholders to realise, in cash, their investment in LCH.Clearnet in respect of the LCH.Clearnet Shares which they sell under the terms of the Transaction;
• LSEG has committed to LCH.Clearnet’s continued adherence to the principles of an open access, horizontal multi-asset class and multi-venue clearing model;
• LSEG is a trusted operator of regulated and systemically important market infrastructure businesses;
• LCH.Clearnet and LSEG will form a leading global partnership in multi-asset, multi-venue clearing and risk management services, generating cost efficiencies and revenue opportunities;
• as an existing stakeholder of LCH.Clearnet, LSEG will continue to use the LCH.Clearnet Group as one of its clearers of listed products, as well as committing to using the LCH.Clearnet Group as a clearer for its derivatives business. This will assist the LCH.Clearnet Group in stabilising its listed product flow; and
• the terms of the Transaction ensure the ongoing involvement of the various stakeholders in the governance and operations of the LCH.Clearnet Group.
4. Benefits of the Transaction

Through this Transaction, LSEG will acquire a majority stake in LCH.Clearnet to form a leading global partnership in multi-asset, multi-venue clearing and risk management services, building on both the LCH.Clearnet Group’s and the LSEG Group’s existing clearing and risk management services. Together, LCH.Clearnet and LSEG will also be better positioned to respond to the growing demand for multi-asset CCPs and the increased need for post-trade services.

In particular, it is expected that the Transaction will accelerate growth and diversification. The Enlarged Group will have the opportunity to seek to develop its listed derivatives franchise, while benefiting from further growth in OTC derivatives. In this context, volumes in listed and OTC derivatives have been growing rapidly; specifically, trading volumes in European listed equity and fixed income derivatives grew by circa 10 per cent. between 2005 and 2010 and trading volumes in global OTC derivatives grew by circa 20 per cent. (CAGR) in terms of notional outstanding value between 1998 and 2011.

The Enlarged Group will build on the combined strengths of the LCH.Clearnet Group and the LSEG Group, namely:

• the LCH.Clearnet Group’s strong reputation and open, horizontal model: preferred by customers, this client-focused model features stakeholder-focused advisory committees in respect of different asset classes;
• the experience and reputation of LCH.Clearnet and LSEG in owning and successfully developing regulated, systemically important businesses, including the LCH.Clearnet Group’s clearing and risk management services and the LSEG Group’s post-trade businesses, CC&G and Monte Titoli (a settlement provider and central securities depository);
• shared open and trusted dialogue and relationships with regulators;
• LSEG’s expertise in operating business models in partnership with customers (e.g. Turquoise and MTS);
• LSEG’s experience of successful execution and growth in previous transactions (Borsa Italiana, MillenniumIT, Turquoise, FTSE) and LSEG’s proven success in driving cost efficiencies;
• the international reach and expertise of both organisations (Amsterdam, Brussels, Colombo, Hong Kong, London, Milan, New York, Paris, Porto and Rome); and
• the strong global brands of LCH.Clearnet and LSEG.
The Transaction highlights LCH.Clearnet’s and LSEG’s continued commitment to the provision of customer-focused products and services. Following Completion, the decision of where products will be cleared will be driven by customer choice and commercial considerations. Existing LCH.Clearnet Shareholders, including many major customers of LCH.Clearnet, will continue to own at least 40 per cent. of LCH.Clearnet’s Issued Share Capital and will maintain a strong ongoing interest in LCH.Clearnet. A shared commitment to an open, non-discriminatory clearing model will be enshrined in LCH.Clearnet’s constitution as a Core Operating Principle from Completion (Appendix B contains further details).
Revenue Synergies

Annual revenue synergies of up to €20 million (£17 million) are targeted by the end of year 3 and up to €40 million (£33 million) are targeted by the end of year 5. There are no anticipated material technology upgrades required in relation to revenue synergies. These synergies are expected to be generated across a range of areas, by offering customers new products and services and delivering efficiencies, including through a better aligned trading and clearing offering. For example, LSEG will seek opportunities to develop its listed fixed income and equities derivatives franchise, including equity index and fixed income derivatives.

Cost savings

LCH.Clearnet’s current strategy is to deliver increased efficiencies, de-duplication of technologies and enhanced risk and collateral management services through its transformation plan. LSEG supports LCH.Clearnet’s strategy and endorses LCH.Clearnet’s commitments to reducing costs, which will remain a key priority for the Enlarged Group’s business following Completion. LSEG expects that its own successful experience in driving cost and other efficiencies will assist LCH.Clearnet in delivering its strategy. LSEG expects that further efficiencies will be achieved through scale benefits (including through the sharing of some internal support services), further enhancing IT project management and through a joint purchasing approach in areas such as IT.
Total annualised cost savings from LCH.Clearnet’s strategy are expected to amount to €35.8 million (£29.8 million) by the end of 2012, of which €3.6 million (£3.0 million) has been delivered in 2011. One-off implementation costs with regard to LCH.Clearnet’s planned cost savings are estimated to be €41.4 million (£34.5 million).

In addition, LSEG and LCH.Clearnet have identified incremental cost savings of €23 million (£19 million) per annum by the end of year 3 and €25 million (£21 million) by the end of year 5. One-off implementation costs with regards to these incremental cost savings are estimated to be €14 million (£12 million).

The revenue synergies and cost savings are expected to accrue partly in LCH.Clearnet and partly in LSEG and will thereby benefit continuing LCH.Clearnet Shareholders as well as LSEG Shareholders.

5. Financial effects of the Transaction and financing

The LSEG Board believes that the Transaction will deliver enhanced growth and substantial revenue synergies, as well as creating the opportunity for cost savings, as outlined in section 4 above.

The Transaction is expected to be immediately earnings accretive for LSEG. Return on invested capital is expected to exceed LSEG’s WACC in the first year, falling slightly due to the expected loss of NYSE Euronext’s business in the second year (detailed in section 15) and thereafter meets and then exceeds WACC as the Enlarged Group benefits from full synergies and growth in the Enlarged Group’s business.

This statement regarding earnings enhancement is not intended to be a profit forecast and should not be interpreted to mean that the earnings per LSEG Share for the current or future financial periods will necessarily be greater than those for the relevant preceding financial period.

Pro forma for the Transaction, Adjusted net debt /Adjusted EBITDA (based on historic pro forma Enlarged Group Adjusted net debt of £1,235 million and Adjusted EBITDA  of £590 million) would be circa 2.1x. LSEG’s target is to reduce Adjusted net debt/Adjusted EBITDA to 2.0x or below within a year of Completion based on strong cash generation by the Enlarged Group.

Completion will require the payment by LSEG of a maximum of €463 million (£386 million) in cash, being the consideration payable for 60 per cent. of LCH.Clearnet’s Issued Share Capital.

LSEG intends to finance the Transaction, its related costs and expenses and the ongoing operations of the Enlarged Group from existing cash resources and bank facilities. On 15 December 2011, LSEG completed a new committed revolving credit facility for £350 million (€420 million) with Lloyds TSB Bank plc, The Royal Bank of Scotland plc, Morgan Stanley Bank International Limited and The Bank of Tokyo-Mitsubishi UFJ, Limited.

To ensure consistency of terms between the new facility and the LSEG Group’s pre-existing facilities, an amendment to the pre-existing facilities has been completed which effectively permits the maintenance of acquired debt instruments if these are maintained specifically for regulatory purposes and consequently the Enlarged Group will retain LCH.Clearnet’s existing balance of €177 million Preferred Securities. The issued Preferred Securities receive 50 per cent. equity credit from Standard & Poor’s.

LCH.Clearnet will pay the maximum amount required in order to fund the Special Dividend into an escrow account at or around Completion. LCH.Clearnet intends to finance this payment from existing cash resources. The Special Dividend will use €41 million (£34 million) of retained profits that could otherwise have been applied against any increased regulatory capital requirements of the LCH.Clearnet Group companies. The LSEG Group has undertaken to subscribe up to a maximum of €24 million (£20 million) of additional capital if required by LCH.Clearnet in order to meet the regulatory capital requirements of the LCH.Clearnet Group.

6. Governance, management and ongoing relationship between LCH.Clearnet and LSEG

The governance arrangements relating to the LCH.Clearnet Group will reflect its ownership structure following Completion, the need for appropriate stakeholder representation, the requirements arising from the regulated status of the LCH.Clearnet Group companies and LSEG’s requirements for appropriate controls as the majority LCH.Clearnet Shareholder. It should be noted that such arrangements may be subject to change, depending on the finalisation of new regulatory requirements. In particular, the governance arrangements that will be implemented as part of the Transaction with respect to board composition may need to be amended to bring them into line with the final requirements of regulators, EMIR and Dodd-Frank.

The governance and management arrangements, together with certain ongoing relationship matters, are principally set out in the New LCH.Clearnet Articles and the Relationship Agreement. In light of the horizontal model which LCH.Clearnet and LSEG are safeguarding through the Transaction and to support LCH.Clearnet’s planned international expansion, especially into the US and Asia, flexibility has been maintained in the governance structure to incorporate future Venue partners, which may be invited to propose a director for appointment to the LCH.Clearnet Board as a Venue Director. The Business Plan and the Budget will set out strategy and financial matters in relation to the management of LCH.Clearnet. In addition, certain terms of reference and policies will, pursuant to the terms of the Implementation Agreement, be adopted with effect from Completion.

Although LSEG will not be entitled to appoint a majority of the directors on the LCH.Clearnet Board, LSEG has appropriate controls as a majority shareholder in order to safeguard its interests, through certain consent mechanisms and through the right to appoint and remove up to four directors to the LCH.Clearnet Board, including the Chief Executive Officer of LCH.Clearnet. In addition, the LCH.Clearnet Group will operate in accordance with the Core Operating Principles agreed between LCH.Clearnet and LSEG. Following Completion, LCH.Clearnet’s current Non-Executive Chairman, Jacques Aigrain, and current Chief Executive Officer, Ian Axe, will remain in their roles and Ian Axe will also be invited to join LSEG’s executive committee.

Provisions regulating the operation of the clearing business of LCH.Clearnet and LSEG following Completion are contained in the Relationship Agreement and summarised in Appendix B.

Appendix B sets out further detail in relation to governance, management and the ongoing relationship between LCH.Clearnet and LSEG, including the Core Operating Principles.

No significant changes are anticipated to the approach taken to the regulation of the LCH.Clearnet Group and the LSEG Group by their respective regulators as a result of the Transaction. LCH.Clearnet will continue to be lead-regulated by the ACP and LSE plc by the FSA.

7. SwapClear Businesses

LCH.Clearnet has harnessed the expertise and the financial resources of a number of the leading investment banks active in the swaps market (the SwapClear Banks) to develop SwapClear and, more recently, ForexClear and CDSClear (together, the SwapClear Businesses). LCH.Clearnet has entered into agreements in respect of each SwapClear Business with the SwapClear Banks (the SwapClear Agreements), under which the great majority of the cost of developing and operating the SwapClear Businesses is borne by the SwapClear Banks, and accordingly governance and financial returns from the SwapClear Businesses are shared with them.

SwapClear is in operation but neither of the other two SwapClear Businesses is yet operational. Accordingly, the impact of the SwapClear Businesses on the revenues and profits of the LCH.Clearnet Group has yet to be fully realised; however, with the strong regulatory impetus to have a much higher proportion of OTC transactions centrally cleared, the prospects for the SwapClear Businesses are strong and LSEG expects them to become an increasingly significant part of the LCH.Clearnet Group's operations and financial performance. In addition, achieving cross margining offsets as between different clearing houses will be a critical area of development over coming years for the SwapClear Businesses, and efforts are already underway to explore how that might be achieved in the US for SwapClear.

The SwapClear Agreements

The terms of the SwapClear Governance Agreement (most recently entered into in 2010), the ForexClear Agreement (entered into in 2010) and the CDSClear Agreement (which is still to be entered into) are substantially similar:

(a) the SwapClear Banks, through the companies established by them, have the right to oversee the development and operation of the SwapClear Businesses (including the management of the separate business units established to operate the SwapClear Businesses) and have a majority on the separate governing committees of the SwapClear Businesses;
(b) the SwapClear Banks directly or indirectly finance or underwrite most of the development and operating costs for the SwapClear Businesses;
(c) there are detailed provisions for the calculation and allocation of annual surpluses earned by LCH.Clearnet in respect of the SwapClear Businesses set out in the SwapClear Agreements, the cash flow impact of which is described under the heading "Cash Flow Allocation from SwapClear Businesses" below; and
(d) in each case, the SwapClear Banks are able to terminate the SwapClear Agreements on one year’s notice after an initial period, but in respect of the SwapClear Governance Agreement and the ForexClear Agreement the earliest effective date of termination in some circumstances is 2014. Where any of the SwapClear Agreements are terminated, the SwapClear Banks are entitled to certain IP and IT rights. In addition, each of the SwapClear Agreements contains provisions entitling the SwapClear Banks to terminate the relevant agreement with immediate effect on a change of control of LCH.Clearnet. In such circumstances, LCH.Clearnet may have either to reimburse the relevant counter party for capital expenditure costs incurred (being the position under the CDSClear Agreement) or, alternatively, be unable to recover capital expenditure costs incurred by it on behalf of the relevant counter party (being the position under the SwapClear Governance Agreement and the ForexClear Agreement). See also below in relation to the modification of the change of control termination rights in the SwapClear Agreements.
Cash Flow Allocation from the SwapClear Businesses

Cash flows generated from the operation of the SwapClear Businesses are used to:
• pay LCH.Clearnet a priority profit share; and
• repay sums invested in developing the business in question;
and thereafter they are allocated between the SwapClear Banks (reflecting their bearing the risk of underwriting the development and operating costs of the relevant business) and LCH.Clearnet.

Proposed changes to the SwapClear Businesses arrangements

Certain US regulatory rules coming into force in May 2012 require LCH.Clearnet to substantially lower the criteria of minimum net worth for its clearing members. LCH.Clearnet wishes to limit the risks posed by the broadened membership criteria by creating a segregated SwapClear default fund and introducing a loss distribution mechanism which was agreed by the members and which limits the amount of resources that LCH.Clearnet is required to make available in the event of a SwapClear default. The introduction of a segregated default fund has been approved by clearing members in a ballot and is now going through a regulatory approval process.

LSEG and LCH.Clearnet have also agreed with the SwapClear Banks to slightly amend the existing change of control provisions in the SwapClear Agreements to provide that if there is, during the term of the relevant SwapClear Agreement, a change of control of LCH.Clearnet, including as a result of there being a change of control of LSEG, pursuant to which LCH.Clearnet comes under control of an exchange or other equivalent market operator, the SwapClear Banks will be entitled to terminate all or any of the SwapClear Agreements. The SwapClear Banks have agreed to waive their rights under these provisions in the SwapClear Agreements in relation to the Transaction.

8. Employees

The LSEG Board attaches great importance to the skills and experience of management and employees in the Enlarged Group and believes that they will be an important factor for its continuing success. The LSEG Board believes that employees will generally have greater opportunities arising from the Transaction owing to the enhanced growth prospects of the Enlarged Group. The LSEG Board is also pleased to note that positive opinions have been received from LCH.Clearnet’s French works council and its Dutch employee representative body in relation to the Transaction on 12 December 2011 and 15 December 2011 respectively.

9. LCH.Clearnet Shareholder support

LCH.Clearnet Resolution

LCH.Clearnet Shareholders which, in aggregate, have an interest in 62.7 per cent. of LCH.Clearnet’s Issued Share Capital, have undertaken to vote in favour of the LCH.Clearnet Resolution.

Offer

LCH.Clearnet and LSEG have received undertakings to accept, or procure the acceptance of, the Offer from LCH.Clearnet Shareholders in respect of LCH.Clearnet Shares representing 46.9 per cent. of LCH.Clearnet’s Issued Share Capital (subject to the scaleback and allocation in accordance with the conditions set out in the Offer Document (see section 10 below for further detail) and subject to the other terms and conditions of the Offer).

Each of these undertakings will cease to be binding in certain circumstances, including in all cases (a) following a change in the recommendation of the LCH.Clearnet Recommending Directors, (b) if certain of the key milestones in the Offer timetable are not achieved, and (c) if the Offer lapses or is withdrawn (which will occur if the Implementation Agreement is terminated). In addition, each of the undertakings permits the relevant shareholder not to vote in favour of the Transaction and/or to accept the Offer if a third party offer is proposed for LCH.Clearnet. The terms and basis on which a third party offer or proposal would need to be made in order to give rights of termination vary between the undertakings. Additional information on the LCH.Clearnet undertakings is included in Appendix E.


10. Key terms of the Offer and of the Special Dividend

On Completion, LSEG will own between 50 per cent. plus one LCH.Clearnet Share of the issued share capital of LCH.Clearnet as at Completion and 60 per cent. of LCH.Clearnet’s Issued Share Capital. The balance of LCH.Clearnet Shares not held by LSEG will be held by existing LCH.Clearnet Shareholders which retain some or all of their LCH.Clearnet Shares and any new Venues that have been invited by LSEG (with the approval of LCH.Clearnet) to become LCH.Clearnet Shareholders.
It is possible that, prior to Completion, LCH.Clearnet could enter into commercial arrangements with trading venues and/or market infrastructure providers that may involve an issue of LCH.Clearnet Shares (within the LCH.Clearnet Directors’ current standing authority to allot up to five per cent. of the issued share capital of LCH.Clearnet) or a transfer of LCH.Clearnet Shares.
If, prior to Completion, LCH.Clearnet issues any LCH.Clearnet Shares which would, even though the Minimum Acceptance Condition has been fulfilled, result in LSEG having a holding of 50 per cent. or less of the issued share capital of LCH.Clearnet as at Completion, LSEG shall be entitled and obliged to subscribe at the Offer Price at Completion for such number of additional LCH.Clearnet Shares as will provide the LSEG with a shareholding of 50 per cent. of the issued share capital of LCH.Clearnet as at Completion plus one LCH.Clearnet Share.
Under the terms of the Transaction, accepting LCH.Clearnet Shareholders will receive €20 per LCH.Clearnet Share acquired, comprising cash consideration of €19 per share payable by LSEG under the Offer plus €1 per share from the Special Dividend payable by LCH.Clearnet (which may be reduced by the cost of any Relevant Claim(s)). The Offer will be made on and subject to the terms and conditions to be set out in the Offer Document and the Form of Acceptance, including the conditions to the Offer which are set out in Appendix A. The conditions are expected to be satisfied (or waived) and the Offer declared wholly unconditional by the fourth quarter of 2012.
The Offer is not subject to the Takeover Code.

Details of the Special Dividend are set out below.
Offer Mechanics
LCH.Clearnet Shareholders will be asked to conditionally accept the Offer in respect of some or all of their LCH.Clearnet Shares. In addition, LCH.Clearnet Shareholders will be given the opportunity to specify what their preferred shareholding following Completion would be, up to the level of their existing shareholding in LCH.Clearnet (a Target Holding Election). LCH.Clearnet Shareholders will be able to make a Target Holding Election to retain some or all of the LCH.Clearnet Shares they have conditionally assented to the Offer.
LCH.Clearnet Shares in excess of the Minimum Acceptance Percentage conditionally assented to the Offer will be allocated on the basis of the scaleback and allocation principles set out in the Offer Document.
In summary, these scaleback and allocation principles provide that:
(a) LCH.Clearnet Shares in excess of the Minimum Acceptance Percentage that have been conditionally assented to the Offer will initially be available to any new Venue partners invited by LSEG (with the approval of LCH.Clearnet) to be LCH.Clearnet Shareholders, provided that such new Venue partners may only acquire, in aggregate, up to 10 per cent. of LCH.Clearnet’s Issued Share Capital;
(b) once any such allocations to new Venue partners have been satisfied, the determination as to which persons will purchase LCH.Clearnet Shares in excess of the aggregate of the Minimum Acceptance Percentage and such new Venue partner allocations (the Excess Offer Shares) shall be made on the basis of the Target Holding Elections (if any);
(c) if the Minimum Rollover Condition would not be met were all the Target Holding Elections to be satisfied in full, LSEG shall only acquire (or agree to acquire) such number of Excess Offer Shares as will ensure that the Minimum Rollover Condition is satisfied; and
(d) the extent to which any Target Holding Elections may be satisfied, and any scaleback of the number of Excess Offer Shares to be acquired by LSEG as described above effected, will be determined in LCH.Clearnet’s and LSEG’s sole discretion, taking into account the aim of:
(i) providing a full cash exit to LCH.Clearnet Shareholders (in particular, smaller LCH.Clearnet Shareholders) that wish to sell their entire shareholding; and
(ii) achieving balanced ongoing ownership with each major User Shareholder (as far as practicable and having regard to the flow contributed by each User Shareholder) continuing to hold in the range of 1.5 – 2.5 per cent. of LCH.Clearnet’s Issued Share Capital.

Special Dividend
LCH.Clearnet will, conditional on the passing of the LCH.Clearnet Resolution, declare a special dividend of €1 per LCH.Clearnet Share (plus an additional amount calculated by reference to interest payable on the LCH.Clearnet bank account after deduction of certain costs), subject to the deductions referred to below, to Qualifying LCH.Clearnet Shareholders conditional on the Offer becoming unconditional in all respects (the Special Dividend).

Following the declaration of the Special Dividend, LCH.Clearnet will enter into a deed poll in favour of Qualifying LCH.Clearnet Shareholders under which it will commit to pay the Special Dividend on the fifth anniversary of the Offer becoming unconditional in all respects (subject to acceleration or delay in certain limited circumstances). The Special Dividend may be reduced by the amount of the cost of any Relevant Claim (or Claims) (in each case after insurance recoveries and taking account of the tax effect of any such payments as well as the deduction of applicable costs and withholding taxes). Payment of the Special Dividend may be made sooner if any Relevant Claim(s) is/are finally determined or settled within the five year period, or if the LCH.Clearnet Independent Directors determine in good faith that there is not a reasonable likelihood of further Relevant Claims or costs arising, so that the remaining amount of the Special Dividend can be safely paid out to Qualifying LCH.Clearnet Shareholders. The five year period may also be extended for as long as the LCH.Clearnet Independent Directors determine is reasonably required if a Relevant Claim is in fact threatened or made and has not been determined or settled by the fifth anniversary of the Offer becoming unconditional in all respects.

LCH.Clearnet will pay the maximum amount required in order to fund the Special Dividend into an escrow account at or around Completion. LCH.Clearnet intends to finance this payment from existing cash resources.

The Special Dividend will use €41 million (£34 million) of retained profits that could otherwise have been applied against any increased regulatory capital requirements on the LCH.Clearnet Group companies. LSEG has undertaken to subscribe up to a maximum of €24 million (£20 million) of additional capital in LCH.Clearnet if required by LCH.Clearnet in order to meet the regulatory capital requirements of the LCH.Clearnet Group.

As will be explained in more detail in the LCH.Clearnet Circular, the LSEG Circular and the Offer Document, a clearing house’s extensive powers and obligations when a member defaults may have to be exercised in situations of great uncertainty and market volatility, under extreme time pressure and on the basis of imperfect information. Such circumstances can give rise to liability to clearing members if the steps taken are held to be negligent or in bad faith. The LCH.Clearnet Group has not received any claim or threat of any claim for alleged negligence or bad faith in respect of any past default. However, the possibility of such claims being made or being successful, and of not being fully covered by the £75 million of insurance coverage carried by the LCH.Clearnet Group, cannot be excluded.

LSEG is satisfied that the effect of the Special Dividend, which will result in LCH.Clearnet Shareholders bearing the net cost after insurance recoveries and taking account of the tax effect of any Relevant Claim(s) up to €41 million (£34 million), is that the risk of liability in respect of past defaults should not be material from the perspective of LSEG Shareholders.

11. Risk Factors

The LSEG Circular and the Offer Document will describe the risk factors considered to be material in the context of the Transaction and the LCH.Clearnet Circular will cross-refer to the risk factors set out in the Offer Document. An overview summary of these risk factors is included at Appendix C.

12. Board Recommendation

LSEG

The LSEG Board, which has received financial advice from Morgan Stanley, Citi and Societe Generale, considers the terms of the Transaction to be fair and reasonable. In providing such financial advice to the LSEG Board, Morgan Stanley, Citi and Societe Generale have relied on the LSEG Board’s commercial assessment of the Transaction.

The LSEG Board believes the Transaction and the LSEG Resolution to be in the best interests of the LSEG Shareholders as a whole and, accordingly intends, unanimously to recommend that the LSEG Shareholders vote in favour of the LSEG Resolution to be proposed at the LSEG Meeting, as it intends to do in respect of its own beneficial holdings of, in aggregate, 204,710 LSEG Shares, representing approximately 0.08 per cent. of the issued share capital of LSEG as at 8 March 2012, being the last practicable day before the publication of this announcement.

LCH.Clearnet

J.P. Morgan has provided financial advice to the LCH.Clearnet Board in connection with the Transaction and Rothschild has provided a fairness opinion to the LCH.Clearnet Board in connection with the financial terms of the Transaction.

The LCH.Clearnet Recommending Directors, who have received advice from Rothschild, consider that under the terms of the Transaction the total consideration of €20 per LCH.Clearnet Share for each LCH.Clearnet Share acquired, comprising the cash offer of €19 per LCH.Clearnet Share, and the Special Dividend of €1 per LCH.Clearnet Share, is fair from a financial point of view.

In providing its financial advice to the LCH.Clearnet Board, Rothschild has taken into account the commercial assessments of the LCH.Clearnet Directors, but has not considered the impact of the Transaction on the value of any LCH.Clearnet Shares retained by existing LCH.Clearnet Shareholders or the impact of any LCH.Clearnet Shareholder’s election in respect of the Offer not being satisfied in full.

The LCH.Clearnet Recommending Directors, who have received financial advice from J.P. Morgan, consider the Transaction to be in the best interests of LCH.Clearnet Shareholders as a whole. Accordingly, the LCH.Clearnet Recommending Directors intend to unanimously recommend the Transaction to LCH.Clearnet Shareholders and that LCH.Clearnet Shareholders vote in favour of the LCH.Clearnet Resolution.

In providing its advice to the Recommending Directors, J.P. Morgan has taken account of the Recommending Directors' commercial assessments.

The LCH.Clearnet Directors other than the LCH.Clearnet Recommending Directors have not participated in this recommendation due to conflicts of interest.

13. Timetable

The Offer Document, LCH.Clearnet Circular and LSEG Circular are expected to be published within 14 days of this announcement and the LCH.Clearnet Meeting and the LSEG Meeting are expected to take place in early April 2012. Subject to obtaining shareholder and regulatory approvals, the proposed Transaction is expected to become effective by the fourth quarter of 2012.

14. About the LSEG Group

The LSEG Group operates a broad range of international equity, bond and derivatives markets, including the London Stock Exchange; Borsa Italiana; MTS fixed income platform; and Turquoise, offering pan-European and US lit and dark equity trading. Through its markets, the LSEG Group offers international business unrivalled access to Europe's capital markets.

The LSEG Group is a leading developer of high-performance trading platforms and capital markets software and also offers its customers around the world an extensive range of real-time indices and reference data products and market-leading post-trade services.

Headquartered in London and with significant operations in Italy and Sri Lanka, the LSEG Group employs approximately 1,900 people. Further information on the LSEG Group can be found at www.londonstockexchangegroup.com

15. About LCH.Clearnet

LCH.Clearnet is a leading User-owned and User-governed CCP group, serving major international trading venues and customers, as well as a range of OTC markets.
LCH.Clearnet is a private limited company, registered in the UK. It is a holding company created as part of the merger of London Clearing House and Clearnet S.A. in 2003 and oversees its two wholly owned operating subsidiaries, LCH.Clearnet Limited (incorporated in the UK) and LCH.Clearnet S.A. (incorporated in France). LCH.Clearnet Limited is a Recognised Clearing House regulated by the UK Financial Services Authority. LCH.Clearnet S.A. is a Credit Institution and Clearing House regulated by a regulatory college of central banks and market regulators from France, Netherlands, Belgium and Portugal. Another subsidiary of LCH.Clearnet, LCH.Clearnet (Luxembourg) S.à.r.l., serves as a holding company for the LCH.Clearnet Group’s intellectual property.
As a CCP, the relevant LCH.Clearnet Group company registers and processes trades and assumes the counterparty risk involved when two parties (or members) trade and clear the trade through the relevant LCH.Clearnet Group company. When the trade is registered with the relevant LCH.Clearnet Group company, it (and in certain cases a CCP that is interoperable with the relevant LCH.Clearnet Group company) becomes the legal counterparty to each side of the trade. To protect itself against the risk that a clearing member defaults on any of the trades registered with the relevant LCH.Clearnet Group company, it collects default fund contributions as well as initial and variation margin (which may be in the form of cash or other collateral) from its members. The amount of margin is decided by the relevant LCH.Clearnet Group company’s risk management processes, which involve the assessment of a member’s positions and market risk on at least a daily basis. Should members default on their obligations under a trade, the relevant LCH.Clearnet Group company will manage the defaulting member’s open position using some or all of the collateral and default fund contributions placed by the member with the relevant LCH.Clearnet Group company. In extreme situations, where the defaulter’s own collateral and default fund contributions prove inadequate, the relevant LCH.Clearnet Group company’s own funds and the default fund contributions of other members will be exposed. The LCH.Clearnet Group has successfully managed a number of high profile defaults, without recourse to non-defaulters’ default fund contributions or to the LCH.Clearnet Group’s own funds.
By assuming the counterparty risk, the LCH.Clearnet Group underpins many important financial markets, facilitating trading and increasing confidence within the market.
The LCH.Clearnet Group performs clearing and risk management services for a broad range of asset classes (including equity securities, commodities, fixed income products, such as euro and sterling denominated bonds and repos

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