LSE’s Rolet Between A Rock And A Hard Place

NEWSMAKERS: UNITED KINGDOM

By Anita Hawser

Xavier Rolet, the London Stock Exchange’s CEO, must have breathed a sigh of relief when the European Commission announced in early August that it would investigate the proposed merger between Deutsche Börse and NYSE Euronext.

Just a few days before the Commission’s announcement, Rolet was quoted in the Financial Times newspaper as saying that the proposed merger could dilute the UK’s voice in bodies such as the European Securities and Markets Authority.

The merger also threatens the LSE’s competitive position in derivatives trading. The EC says it “would give the merged company by far the leading position in derivatives trading in Europe,” which is part of its argument for investigating of the merger.

It argues that fee competition may be reduced as new entrantys would find it diffuclt to gain market share.

Although the LSE is not as strong in derivatives trading as NYSE Euronext, Rolet has ambitions for the LSE on the clearing side, following its acquisition of Italian exchange Borsa Italiana back in 2007. The acquisition gave the group a central securities depository, Monte Titoli, and an Italian clearinghouse, Cassa di Compensazione e Garanzia.

Rolet is between a rock and a hard place when it comes to transatlantic stock exchange mergers.

After spending months trying to convince the shareholders of TMX Group—owners of the Toronto Stock Exchange—of the value of the merger, the LSE called it off in late June after failing to secure the required two-thirds majority of shareholder votes. If the merger had gone ahead, it would have helped boost LSE’s market capitalization—which stands at £2.4 billion, behind that of other leading exchanges.

The LSE also faces increasing competition from multilateral trading facilities like Chi-X that have stolen market share.

With the failed TMX deal, commentators are now querying the LSE’s value as a takeover target and what the impact will be for its beleaguered CEO—who has yet to realize his grand plans for the UK’s premier stock exchange.