The London Stock Exchange's decision to sign a new clearing agreement with its incumbent clearer, London Clearing House (LCH), has been widely applauded by users.

The LSE maintains the new arrangement, struck after lengthy negotiations with Eurex Clearing, will create a 'new competitive tension' between clearing providers since LCH will be retained on a short-term contract. But users still maintain the cost of switching to a new clearer is never likely to be worthwhile.

There are two reasons for that. First, the fees charged by the clearing house ­ around 15p for the average bargain following LCH's 25 per cent price cut ­ represent less than 10% of the overall fees, the biggest element of which is the LSE's own charge. It would take years for most firms to recoup the capital spent on establishing a new clearing link.

But the second reason ­ one less well appreciated ­ is perhaps the cruncher. Eurex Clearing uses the TIMS algorithm for calculating margins. This is a SPAN-based structure. By contrast, LCH uses an algorithm called Equity Risk Analysis (ERA), which is portfolio-based. Switching from the LCH margining system to TIMS would, say operations managers, lift firms¹ margin requirements by a factor of four or five times, making a switch to Eurex still less attractive.

There could be a new source of work for corporate financiers in Tokyo.

A government advisory body is expected to open discussions shortly with key parties to ease the listing requirements for foreign companies. Among the likely proposals will be one to allow foreign firms to report in English. At present, companies are required to report in Japanese and to a strict format. This has deterred new listings and helped encourage more than two-thirds of those foreign companies listed in Tokyo ten years ago to delist.

Given the recent signs of a bottoming-out in Japan’s 13-year bear market, the changes – which are targeted for fiscal year 2004 – could be timely.

Deutsche Börse’s Xetra platform will started trading the leading 25 Dutch stocks on 17 November in direct competition to Euronext Amsterdam.

The London Stock Exchange, which is also trying to woo Dutch brokers’ business, will launch its Dutch platform, Eurosets, on 29 March next year. Both exchanges are entering the Dutch market at the request of a group of Dutch banks. They are keen to have an alternative to the problem-ridden Euronext platform.

Big incentives are on offer to firms that switch their business. DB is offering free trading access and hardware for a year; the LSE is offering to waive entry fees and installation costs if banks sign up before the end of this year. DB is offering big trading refunds to the ten most active market makers and brokers for two years. The LSE has calculated that its Eurosets platform will undercut Euronext by about 40%.

DB has something of a head start. Not only will its Dutch service be up and running well before the LSE’s, but some 20 Dutch firms are already linked up to Xetra. That, however, will not deter the LSE, which is thought to be keen to develop Eurosets into a platform that can compete in other European equity markets, too.

Financial services firms have been at the forefront of “offshoring” – the export of clerical and back office jobs to low-wage economies.

Often, this has incurred the hostility of unions. Now McKinsey has completed a study based on offshoring by US companies to India that demonstrates substantial benefits to the US economy. The study, Offshoring and beyond is published on mckinseyquarterly.com.

The study shows that, for every dollar of spending that moves offshore, the US company saves 58 cents, mainly in wages, while the Indian company is likely to spend five cents on US goods and services (ranging from computers and telecoms equipment to legal financial and marketing expertise). Exports from the US to India topped US$4 billion in 2002 against US$2.5 billion in 1990. A further four cents of every dollar is likely to be repatriated to the US as many Indian offshore service providers are in fact US-owned. There is thus a direct recapture of 67 cents for every dollar of spending that moves offshore.

But then there are big indirect benefits. Capital savings can be invested to create new jobs, for which labour is available. This, says McKinsey, is precisely what has happened over the past two decades as manufacturing sector jobs have moved overseas. Using government statistics on reemployment and wage levels, McKinsey estimates the indirect benefit to the US economy at between 45 and 47 cents for every dollar offshored. And that, it says, is a conservative estimate: workers in IT and business services tend to find jobs more quickly than those in the service sector as a whole.

One way or the other, there is a net benefit of 12 to 14 cents for every dollar of costs moved overseas.

As well as making a major investment in business continuity to reduce operational risks (see TRANSITIONS), Euroclear is also taking steps to improve its operating structure.

It aims to reduce the risk that any problems arising at its banking offshoot, Euroclear Bank, could cause systemic fall-out for the various central securities depositories (CSDs) Euroclear now controls. This has become an issue of concern given the increasing role planned for Euroclear Bank within the single settlement engine (SSE) that Euroclear is now building for the different markets it now settles.

Under the new structure, Euroclear is to create a new holding company, Euroclear SA/NV. The national CSDs – CRESTCo, Euroclear France and Euroclear Netherlands – and Euroclear Bank will all become sister subsidiaries of this new company, which will also own and operate the SSE. The structure will isolate the CSDs from any problems encountered by Euroclear Bank – though since the latter only lends on a collateralised basis such problems are unlikely in the extreme.

The new structure will also add transparency to the group, making any cross-subsidisation of the bank by the CSDs easier for outsiders to track.