Hedge fund makes hefty bets against London Stock Exchange and Deutsche Boerse

Hedge fund Merian has taken a £70m bet against the London Stock Exchange amid uncertainty over the future of derivative contracts in the event of a no-deal Brexit.

Merian Global Investors – one of the most active short sellers in the UK and EU – opened a 0.5 per cent short position on LSE last week, at a value of around £68m.

The company was last shorted in 2012 but those bets were cut by the end of the year and Merian's position is the first “big short” since then, according to data company Breakout Point.

Short selling is the process of borrowing shares from a broker in the hope a company's share price will fall, traders can then buy back the shares at the lower price and profit from the difference.

The asset management firm has also opened a 0.5 per cent position on German exchange Deutsche Boerse, it can be revealed.

It comes after UK clearing houses and trade bodies called for urgent clarity on temporary arrangements, first mooted by the EU last month, in order to protect contracts worth trillions of pounds being moved out of London.

The EU is set to provide that clarity next week and is expected to grant EU financial institutions access to London's clearing houses for 12 months if Britain crashes out of the EU without a deal.

Merian declined to comment but confirmed the shorting position was held by its “systematic” desk, which relies on quantitative analysis.

Shares in LSE rose 2.7 per cent yesterday as the FTSE enjoyed an overall rise but also on reports Brussels was set to provide much-needed clarity over clearing after Brexit.