Deutsche Börse chief in attack on Euronext ally

The battle for control of the London Stock Exchange took a fresh twist yesterday after the head of Deutsche Börse, one of two bidders for the business, launched a fierce attack on the company which handles settlement on most of the exchanges owned by the rival suitor Euronext.

The battle for control of the London Stock Exchange took a fresh twist yesterday after the head of Deutsche Börse, one of two bidders for the business, launched a fierce attack on the company which handles settlement on most of the exchanges owned by the rival suitor Euronext.

Werner Seifert, the chief executive of the German exchange, accused Euroclear of having an obvious conflict of interest after it criticised his bid by claiming Deutsche Börse was seeking to create a monopoly over trading, clearing and settlement functions through its bid for the LSE.

Mr Seifert claimed that Euroclear's own business model had been criticised by its customers for increasing risk, creating material conflicts of interest and distorting competition. He also said that, nothwithstanding its "low-cost" image, it suffered from "hidden extras, invisible costs and exaggerated agent bank costs".

Euroclear handles share settlement for the LSE and three of the four European borses owned by Euronext. It also has a 10 per cent stake in LCH Clearnet, which operates the clearing system for the London market.

Euronext, in turn, has a 3.6 per cent stake in Euroclear and a 24.9 per cent interest in LCH Clearnet. Euronext's chief executive, Jean-Francois Theodore, also sits on the board of Euroclear.

Chris Tupker, the chief executive of Euroclear, has demanded that Deutsche Börse be forced to sell its Clearstream settlement and Eurex clearing subsidiaries as the price of gaining regulatory approval to take over the LSE. Last week Mr Tupker said share issuers, exchange users and regulators needed to be on "red alert" to the dangers of share trading, clearing and settlement becoming a "monopoly in the hands of a company driven by the goal of maximising shareholder profit".

The creation of a so-called "vertical silo" where trading, clearing and settlement are all housed under one roof, is one of the issues at the heart of the bid battle for the LSE. Deutsche Börse's critics claim that if its bid for the London exchange succeeds, it would use its monopoly to ratchet up prices for customers.

However, Mr Seifert ridiculed Mr Tupker's self-styled role as "guardian of the London market", saying: "On the topic of monopolies in post-trade functions Mr Tupker has relevant experience, but he fails to disclose the conflicts he and his organisation have in passing such judgements."

Mr Seifert added that Mr Tupker's criticisms of Deutsche Börse were motivated more by his desire to acquire its settlement business.

"We do not believe Mr Tupker genuinely represents the interests of the London market in demanding a divestiture of Clearstream," he added. "His interest to date has been as a competitor to and potential acquirer of Clearstream."

Mr Seifert also said that Mr Tupker's claims were based on press reports quoting unnamed sources, industry experts and anonymous investors but not the LSE or Deutsche Börse. "The actual plans for post-trade services have not been fully disclosed by either of the parties that have actual knowledge of those plans," he added.