NYSE Euronext Subsidiary LIFFE in Establishment of Clearing Function for London Derivatives Market

Cleary Gottlieb acted for LIFFE Administration and Management, a subsidiary of NYSE Euronext, in its negotiations with LCH.Clearnet group to establish an internal clearing function for the LIFFE derivative markets in London. LCH.Clearnet currently acts as central counterparty clearinghouse (CCP) to clearing members of the London International Financial Futures and Options market, operated by LIFFE.

A CCP reduces post-trade credit exposure by interposing itself as counterparty to all cleared trades on a market in the run up to settlement, and facilitates efficient use of collateral for wholesale market participants by enabling netting of margin calls and exposures across multiple exchanges.

As part of the current arrangements, signed on October 30, LCH.Clearnet has agreed to terminate its current clearing agreement with LIFFE and, separately, to act as outsourced provider of certain risk management, default and ancillary services going forward to LiffeClear, the trading name for the new self-clearing exchange function.

The deal is subject, amongst other things, to the final approval of the arrangements by the Financial Services Authority, which regulates each of LCH.Clearnet and LIFFE as recognized bodies. The LiffeClear arrangements are scheduled to go live in March 2009, from which date LIFFE itself will act as central counterparty to all trades executed on its markets.

Cleary Gottlieb has previously acted for Euronext in its acquisition of LIFFE, on the group’s subsequent merger of its subsidiary, Clearnet SA with the London Clearing House to form LCH.Clearnet, and its part-divestiture of its interest in the merged LCH.Clearnet group. Cleary Gottlieb has also acted previously for LIFFE in the outsourcing of its exchange IT function to joint venture Atos Euronext Market Solutions (AEMS), and the repurchase of AEMS by the NYSE Euronext group. It also acted for Euronext on its merger with the New York Stock Exchange, which closed earlier this year.