LSE Presses to Ensure U.K. Is Home to a Global Exchange

There’s room for only a handful of firms to provide trading venues, clearing and related services around the globe, and the U.K. must ensure one of its companies is among them, according to London Stock Exchange Group Plc’s chief executive officer.

“We believe there is room for four, maybe five, global infrastructure companies,” LSE’s CEO, Xavier Rolet, said Tuesday at the City Week conference in London. “It’s very, very important in the context of the connectivity between the Americas, China as we’ve heard, and Europe, and of course London” that one of these global companies is based in the U.K.

LSE, which at more than $13 billion of market capitalization is the fifth-biggest exchange owner in the world, intends to carry out that role. The company has diversified beyond its roots in equities trading, which now accounts for less than 10 percent of its business, Rolet said in a Bloomberg Television interview.

The company bought FTSE International, an index provider, and has a majority stake in clearinghouse LCH.Clearnet Group Ltd. It purchased Frank Russell Co. last year primarily for its index business.

“A number of participants in our industry, which is an infrastructure industry, are moving toward globalization of its service offering,” Rolet said in an interview. “That is where the growth is, and we’re participating in that.”

About 30 percent of LSE’s revenue comes from North America, while Europe, including the U.K., makes up about 50 percent.

‘Top Four’

Outside Asia, the dominant companies in market infrastructure are LSE, Deutsche Boerse AG, CME Group Inc. and Intercontinental Exchange Inc., said Peter Lenardos, an analyst at RBC Capital Markets LLC.

“Infrastructure is the plumbing that makes markets work,” Lenardos said. “LSE has catapulted into the top four players.”

Regulators are breaking down national barriers in Europe through projects like the Markets in Financial Instruments Directive and the Capital Markets Union, Lenardos said. That makes it easier for market-infrastructure companies to be international.

LSE faces pressure from CME and ICE, which are eyeing LCH.Clearnet’s dominant position in interest-rate swaps. The clearinghouse has backed trades between banks since 1999.

Competition From Chicago

CME is building its business of guaranteeing interest-rate swaps with its clearinghouse. For the month of March through Monday, LCH cleared 71 percent of the rate swap trades between banks and their customers, while CME handled the remaining 29 percent, according to research by Rich Repetto, an analyst at Sandler O’Neill & Partners LP.

LSE’s Chicago-based rival has also recently expanded its operations in London, setting up another clearinghouse in Europe’s largest financial center.

LCH lost its role as the clearinghouse for the London-based ICE Futures Europe in 2008. ICE, based in Atlanta, wanted more control over its clearing operations than LCH would offer. ICE acquired NYSE Euronext in 2013, giving it futures based on interest rates that trade on the Liffe exchange in London.

Jeff Sprecher, CEO of ICE, has said the company will seek to offer clearing for interest-rate swaps, the biggest part of the $691 trillion over-the-counter derivatives market.

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