Tonight:
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When ICE Futures, formerly the International Petroleum Exchange, decided it wanted to clear its trades through its own facility and when this was followed shortly after by Liffe, the futures market, seeking to regain ownership of its clearing activity it all looked a bit bleak for the London Clearing House, which had long had these exchanges as pillar customers.
The world's biggest exchange, the Chicago Mercantile, was firmly wedded to clearing all the trades executed on its exchanges - the so-called vertical silo model - because it means its customers are truly captive and can be charged accordingly.
The fact that two of LCH's main exchange customers had decided to cut their ties and create silos of their own, the better to compete with CME seemed to mark the end not just of the "London" horizontal business model, where exchange customers can choose for themselves where they want to clear their trades but by extension seemed to be potentially terminal for LCH itself.
But for a supposedly doomed utility LCH is showing remarkable signs of life. This morning it announced a deal with New York's Nymex, the main rival to ICE in oil futures trading, whereby Nymex users can clear through LCH.
This is a blatant attempt to try to grab ICE business because Nymex is also going to offer contracts which mirror what ICE offers, the point being to make life difficult for ICE, or to put it the other way, to give ICE customers an alternative if they do not like being shoehorned into ICE clearing.
So it is all good knockabout stuff, though the odds have to be that the initiative will struggle because futures contracts are always very closely identified with the exchange which invented them and the liquidity almost never moves from there to another trading venue. Nevertheless it should add a nice splash of petrol to a relationship which already has the potential to become incendiary as LCH and ICE try to work out the best way to transfer clients' open interest from the incumbent clearer to the newcomer.
LCH says it does not have the authority to transfer clients' business without their permission, but ICE seems to think this is just an excuse to hang on to it for as long as possible. The talks are getting quite ungentlemanly and the dispute may not actually be resolved in time for the for the mid-July deadline - when the ICE silo is supposed to open for business. In a way though, this is a sideshow, albeit an amusing one compared with the bigger ambitions of LCH.
Here the grand plan - if it can pull it off - is to merge with DTCC, the American equities clearing house, the logic of the deal being that the Americans have a massive engine for clearing equities while LCH has a much broader geographic and product experience, not just oil and financial futures, but metals, freight, and much else besides.
LCH has also found its skills in demand from new markets across the world, in Asia and in Russia for example, where its risk management expertise and the reputation of the London market commands respect.
Obviously if the deal is done the American experience of equities can be implanted into Europe and may well be slotted into the Paris Clearnet business to service Euronext and Eurozone equity markets in place of the existing clunking Paris technology.
But the bigger attraction is that DTCC and LCH are pushing in to the business of clearing over-the-counter traded derivatives and they could deliver huge savings for customers if, for example, a combined entity allowed cross margining - the offsetting of capital needed to support trading positions - for example in LCH repos against DTCC interest rate swaps.
It quickly gets a bit arcane but the point is that over-the-counter derivatives trading is where the growth is and if they can get it right it presents a huge opportunity for the clearing houses to get a business and for their customers to save a fortune in capital.
Unfortunately the prize is more obvious than the way to get there.
DTCC operates on a not-for-profit basis while LCH.Clearnet makes an almost embarrassing amount of money in the current booming markets and a way needs to be found to compensate or buy out its shareholders so it too can become not for profit after the merger.
It is not an impossible task, however, and it is hoped that a deal can be put in place in the next few weeks - certainly before the summer break - which will deliver a business with the revenues, the structure and the capabilities to provide an alternative for users who are uncomfortable dealing with silos. And that is sure to be welcomed by the customers.
