Euroclear And CrestCo Form European Settler

by Ulrika Lomas, Tax-News.com, Brussels

05 July 2002

Yesterday brought official confirmation of the merger of European settlement agency Euroclear with London-based CrestCo, which had been rumoured since German stock-market operator Deutsche Borse AG won full control of Luxembourg-based securities settlement system Clearstream in April.

The new business will constitute Europe's largest settlement system, serving the London Stock Exchange, the Irish Stock Exchange, Euronext (operator of the Paris, Brussels and Amsterdam bourses) as well as Virt-x, the electronic platform which trades ex-SWX stocks and other top European blue-chip companies.

The merged business will handle 60% of activity in Europe's 300 top shares and more than 50% of domestic bond trading, said the companies, which last year settled 120 million transactions worth more than $213 trillion.

Major European equity traders have been complaining for some time that settlement costs are far higher than in the US, due to the patchwork of existing national systems, and were disappointed by Deutsche's takeover of Clearstream, which S & P said 'would not address the demands of securities' markets participants to bring down costs by establishing a single Eurobond clearing and settlement institution'.

The new group says it will seek to cut cross-border settlement costs in Belgian, Dutch, French, Irish and British securities by more than 90%, they said, while after its acquisition Euroclear offered just a 20% cost reduction target over three years. Most of the deal's benefits for customers would come with the introduction of its single settlement system in 2005, said CrestCo chief executive Hugh Simpson, who is to become deputy chairman of the new group.

CrestCo is to become a subsidiary of Euroclear Bank, which is owned by Euroclear. Each CrestCo share would be exchanged for 31.5 shares in Euroclear. Neither firm is publicly quoted, and both are owned by a large number of the top banks and brokerages. Euroclear made a net profit last year of 84 million euros ($82 million) on revenues of 827 million euros ($810 million), while CrestCo reported a net profit of UK£8m ($12 million) on revenues of £79m ($120 million).

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