Photographer: Luke MacGregor/Bloomberg

LSE's New Brexit Plan to Protect London Financial-Hub Status

Updated on
  • LSE aims to prevent policies that will fragment markets
  • Clearing has become a key battleground after Brexit vote

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London Stock Exchange Group Plc has set up a Brexit strategy to advise policy makers on how to protect London as a financial hub and prevent the divorce shattering financial-market infrastructure.

The program, which LSE says will help U.K. regulators stay on top of the company’s plans, will engage with British and European officials to guide them on Brexit’s impact on markets. LSE’s goal is to keep continuity of cross-border financial services, and prevent financial-market fragmentation.

Xavier Rolet

Xavier Rolet

Photographer: Simon Dawson/Bloomberg

“Shortly after the referendum as we had predicted, this became a political issue,” LSE chief Xavier Rolet said on a conference call after the company reported first-half revenue of 853 million pounds ($1.1 billion) and raised its dividend. “The evidence strongly suggests that maintaining the status quo will be not just the best option but the only option.”

When Britain voted to leave the EU a year ago, LSE’s clearing unit quickly became the focus of European politicians seeking to lure business from post-Brexit London. Rolet has been a vocal critic of European calls to force the relocation of clearing, a profitable business for the exchange and a key battleground for the financial-services industry.

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Clearinghouses collect collateral and stand between traders to prevent a default from spiraling out of control, and their role has become increasingly entrenched since the 2008 financial crisis.

“It’s clear that our regulators not just globally but in the UK want to know what contingency plans we have in place four our flow businesses, our index businesses,” Rolet said on the call.

The European Commission recommended in June that clearinghouses based outside the EU but deemed systematic to European markets should face direct oversight from the bloc’s regulators. The commission left itself the option of stripping euro clearing from London. The European Parliament and EU member states will assess the proposals after the summer.

Total income at LCH, the clearing unit, amounted to 270 million pounds in the first half, up 31 percent from a year earlier. LSE’s shares rose 3 percent Thursday.

Investors remains confident in LSE’s growth prospects regardless of the regulatory environment, mostly because the company will benefit from mandatory central clearing and increased demand for benchmarks, analytics and data products, according to Peter K. Lenardos, an analyst at RBC Capital Markets in London. He reiterated his outperform rating.

(Adds share price in eighth paragraph.)
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