LSE shares tank after regulatory warning

Shares of the London Stock Exchange (LSE) tumbled after it warned that proposed European regulatory changes will cut net treasury income over next financial year.

Recommendations published by the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) look set to change the rules of the game, and differ considerably from the initial proposals published in March 2012.

One of the key changes is a requirement that as much as 95% of a European clearing house's cash deposits placed with financial institutions be collateralised with debt instruments. This will have an impact on the LSE's Italian central counterparties (CCP) business, CC&G.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

If implemented, the recommendations will require central counterparties - i.e. middle-men - to meet certain conditions regarding, among other things, liquidity and credit and market risk, the LSE said in a company statement.

"If adopted in their current form, the recommendations will have some implications for LSE's existing wholly owned subsidiary CCP, CC&G," it added.

The move could significantly reduce net interest income from its Italian clearing house, which currently accounts for over 15% of total group revenue.

CJ