Money

London Stock Exchange deal is signpost for City


The London Stock Exchange may be days away from doubling in size via the acquisition of Refinitiv, the data spin-off from Thomson Reuters. Over the weekend the LSE confirmed a Financial Times report that the two groups are in advanced talks.

If a deal comes to fruition, it would seal yet another permutation of the potential combinations that trading platforms have explored in recent years. But alongside the microcosmic rejigging of market structures, the LSE’s chosen way forward — under the leadership of American chief executive David Schwimmer and American chairman Don Robert — may also signpost the future of the City of London.

The $27bn purchase would turbo-charge the LSE’s move away from its original core business of facilitating the trading of shares. That cash equities business has become increasingly low margin, amid stiffer competition, technology advances and a deepening trend for companies to be owned privately rather via stock exchange listings.

Buying Refinitiv consolidates the LSE’s shift into data services begun under previous chief executive Xavier Rolet. It also further broadens the LSE’s asset class profile across fixed-income and interest rate products and services.

Most symbolically, it strengthens the group’s standing in other parts of the world, particularly North America and Asia. If Boris Johnson were looking for a touchstone for global Britain, the new prime minister could scarcely have found a better one.

It is all a radical change of direction from two years ago, when a merger between the LSE and Frankfurt-based Deutsche Börse was on the cards.

The then chief executives of the two exchange groups had conceived that deal before the UK’s 2016 Brexit referendum, but bravely continued to push it even after the vote. They spun a valid line that even if political ties were to be cut, a combined exchanges business could act as a valuable economic bridge, maximising continental Europe’s access to capital.

But in the spring of 2017 the putative deal was blocked by the European Commission, nominally on antitrust grounds. Concerns expressed about likely market dominance in derivatives may have been a convenient excuse to scotch a deal made unacceptable by the politics of Brexit.

Regardless of the merits of that merger — or the corporate fallout of it having been blocked — Europe’s capital markets may have suffered more. Easier access to the City of London’s capital could have brought substance to the rhetoric of the EU’s proposed capital markets union, Brexit notwithstanding. Without the deal, and without evidence of alternative impetus, CMU risks being a white elephant.

For the City, the darkening cloud of a no-deal Brexit causes logical concern among financiers. It could severely disrupt the ability of UK-based banks, insurers and asset managers to service clients across the EU — business that is estimated to account for about a fifth of the City’s overall revenue.

Thanks to far-sighted thinking by managers, and resolute direction from the Bank of England, the City is probably as well prepared as it could be for a hard Brexit, having established bridgeheads across the continent that should allow business to be continued, albeit less efficiently and at a higher cost.

But Brexiters have long urged businesspeople to focus less on the disruption of leaving the EU and more on the opportunity to boost business with the rest of the world. For 300-plus years the London Stock Exchange has been a key cog in the City of London machine. The City should indeed take note of its outward-looking reinvention.



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