London Stock Exchange Group

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London Stock Exchange
LSE Goup.png
Founded 1801
Headquarters London
Key People Xavier Rolet, Chief Executive
Employees 4700
Products Cash equities, futures and options, debt, covered warrants, ETFs, reits, fixed interest, CFDs and depositary receipts
Twitter @LSEplc
LinkedIn Profile
Website www.londonstockexchange.com

London Stock Exchange Group (LSE Group) is an international exchange group that operates a range of international equity, bond and derivatives markets, including the London Stock Exchange plc; Borsa Italiana; MTS, the European fixed income market; and Turquoise, the pan-European equities platform. The London Stock Exchange is the United Kingdom's primary stock exchange. The LSE, which is itself publicly traded, provides markets that facilitate the raising of capital and the trading of corporate securities, access to a trading environment, as well as real-time pricing and reference information services worldwide. The 2007 acquisition of Borsa Italiana added futures and options to its product mix.[1]

LSE Group is also a leader in clearing and settlement of securities, with a majority stake in LCH.Clearnet, the global central counterparty clearing operator, as well as wholly-owned subsidiaries CC&G, the Italian clearing house; Monte Titoli, the European settlement business; and globeSettle, a Luxembourg-based central securities depository launched in 2014.[2]

The group also operates index, data and analytics platforms including FTSE Russell Indexes, SEDOL, UnaVista, Proquote and RNS. LSE also operates MillenniumIT, a technology platform LSE bought in 2009, and which forms the basis of LSE’s trading system.

LSE Group is headquartered in London, with operations in North America, Italy, France and Sri Lanka. As of 2015, the group employed over 4700 people.

In 2015, the exchange's Borsa Italiana and Turquoise Derivatives markets was ranked 31st among global derivatives markets, according to the Futures Industry Association's annual volume survey. The two exchanges posted a combined volume of 48.8 million contracts traded, down 3.2 percent from a year earlier when it posted 50.4 million contracts traded.[3]

History

The Early Years

The LSE traces its roots to the stock trading started in coffee houses in London in the late 17th century, which evolved into the opening of the first regulated exchange on March 3, 1801. The exchange amalgamated with 12 regional bourses in 1973 – the year in which female members were admitted for the first time – before the the modern form of the LSE was established with market deregulation in 1986. The so-called “Big Bang” ended the separation of brokers and dealers, opened membership to outside companies and shifted trading from the floor to dealing rooms. The LSE was established as a private limited company.

The Alternative Investment Market was launched in 1985, providing a listing venue for smaller companies, and the Stock Exchange Electronic Trading Service (Sets) and Crest settlement operations started in 1987.

The Transition - Public Listing and Industry Consolidation

Shareholders voted in favor of a stock market listing in 2000, and the LSE listed on its own main board in July 2001.[4]

The LSE has been at the forefront of consolidation in the global exchange sector, successfully fending off a series of hostile takeover bids. The battle started on Dec. 14, 2004, with an unsolicited 530p-a-share offer from Deutsche Boerse which, like subsequent proposals, was rejected by management as undervaluing the company. The LSE introduced a raft of shareholder-friendly measures as part of its defenses, including borrowing to finance a series of share buybacks, cost-control measures and the delivery on time and to budget a new, high-speed share trading platform.[5]

The LSE then considered tentative offers from Euronext and saw off a hostile bid from a consortium led by Australia's Macquarie Bank – launched on Dec. 15, 2005 and valued at 580p-a-share in cash – before embarking on a year-long defense against offers from the Nasdaq. The U.S. exchange made an indicative 950p-a-share offer on March 3, 2006, which was swiftly rejected by the LSE and withdrawn on March 30, 2006. Nasdaq started acquiring LSE stock on Apr. 12, 2006, building a 14.99-percent stake at 1,175p a share, adding a further 3.8 percent on May 3 at 1,218p and 5.4 percent at 1,248p in November. Nasdaq tabled a £2.9 billion indicative offer on Nov. 20, 2006 valued at 1,243p per share, with the U.S. exchange boosting its stake from 24.1 percent to 28.75 percent. The LSE continued to reject the offer and rejected discussions with Nasdaq executives. The offer expired on Feb. 10, 2007.

Freed from the Nasdaq pursuit – though the U.S. exchange remained its largest shareholder – the LSE acquired Borsa Italiana in June of 2007, in a deal valued at €1.6 billion.[6] LSE shareholders received 72 percent of the combined group.

The winter of 2007 saw the LSE caught up in the three-way takeover battle for OMX between the Nasdaq, Borse Dubai and the Qatar Investment Authority (QIA). Borse Dubai and the U.S. exchange subsequently teamed up with a joint offer, while the QIA bowed out in December 2007. Borse Dubai acquired OMX in early 2008 and then transfered it to Nasdaq in return for a 19.9-percent stake in a new combined company as well as Nasdaq's 28-percent stake in LSE.[7] The QIA has a 14.9 percent stake in the LSE.

EDX London, which trades derivatives on Russian and Nordic markets, became a wholly owned subsidiary of the London Stock Exchange in December 2008. In 2007, the total number of derivatives contracts traded across EDX and IDEM increased 32 percent on 2006 to a total of 79.9 million, while the notional value traded grew 45 percent to £1.5 trillion (€2.2 trillion).

The Rolet Era - Restructuring and Growth

In March 2009, Xavier Rolet was named to LSE's board, and two months later was named its new CEO, replacing Clara Furse.[8] One month later, in June 2009, the LSE said it would cut jobs - the first sign of restructuring the 208-year-old bourse since Xavier Rolet took over as chief executive. At that time, the group employed a total of 1,135 staff, split between 570 in the UK and 565 in Italy.[9]

LSE acquired a 51 percent stake in Turquoise, a former rival, in February of 2010, and in July of 2013, LSE increased its stake by purchasing Turquoise's derivatives platform. [10] On July 13, 2010, LSE named Pinar Emirdag, a former Turquoise board member and a key figure in its development, as head of professional business development. The addition came as the bourse sought to lure back customers from new rivals, such as MTFs Bats Europe and Chi-X Europe Ltd.[11] Emirdag left the company in 2013.[12]

The LSE attempted to merge with TMX in early 2011, but lost out to Maple Group Acquisition Corporation. [13] [14]

In 2010, Rolet announced he was stepping down from the board of LCH.Clearnet, ultimately paving the way for LSE to take a majority stake in the clearinghouse. The LSE did not have any shares in LCH.Clearnet at that time, which made it an exception among its global peers in not having a fully integrated clearing house for equities and derivatives.[15] LSE Group closed a €328 million cash deal with LCH.Clearnet in early 2013, leaving the exchange group with a 55 percent stake in the clearing house.[16]

FTSE, Russell, and FTSE-Russell

LSE Group's involvement in the index business dates back to 1984, when the exchange began calculating the FTSE 100 Index for the Financial Times' parent company Pearson. The index team was spun off into a joint venture in 1995.[17] In December 2011, LSE Group agreed to a £450 ($705 million) acquisition of Pearson's 50 percent ownership to become the sole owner of the index group.[18]

In June 2014 the LSE agreed to buy The Frank Russell Company for £1.59 billion ($2.7 billion). The purchase was the largest one in the LSE's history and and gave it the opportunity to attract trading in securities and derivatives that track the Russell indices.[19] It also brought together about $9 trillion of assets benchmarked globally and made LSE the No. 2 player in U.S.-listed exchange traded funds.[20] The deal closed at the end of 2014.[21]

In February 2015, LSE Group entered into a licensing agreement with CBOE to develop and list options based on existing FTSE and Russell Indices. Cash-settled options on the flagship Russell 2000 began trading on CBOE as of April 1, 2015, and in October 2015, the options exchange began offering options on other Russell index products including the Russell 1000 Index (RUI), the Russell 1000 Value Index (RLV) and the Russell 1000 Growth Index (RLG)[22]

When the exchange group acquired Frank Russell, it also inherited Russell Investments, the firm's asset management division which held, at the time of acquisition, about $262 billion under management. Soon after the acquisition was completed, LSE Group put the asset management division up for sale. In October 2015, LSE agreed to a $1.15 billion cash sale to an investment group led by U.S. private equity group TA Associates.[23]

A Look to the Future?

Chris Gibson-Smith stepped down as chairman in 2015 after more than 11 years in the role[24] and former London Metal Exchange chairman Donald Brydon took over the chairman's role that July.

In October 2015, the exchange group announced the launch of a new derivatives exchange, CurveGlobal, which offers trading in interest rate products, including futures on short term interest rate (STIR) in Euribor and Short Sterling and long term interest rate (LTIR) futures in Bund, Bobl, Schatz and Gilts.[25]

In November 2015, the group launched ELITE Connect, a platform that allows market participants such as public companies, investor relations professionals, institutional investors and brokers to make contact, hold meetings and share information online.[26]

On December 22, 2015, LSEG announced it had acquired XTF Inc., a U.S. based provider of ETF data, analytics and ratings. LSEG will integrate the business into LSEG’s Information Services Division, which includes FTSE Russell, SEDOL, UnaVista and RNS.[27]

On February 23, 2016, LSEG and Deutsche Boerse Group announced they were in advanced talks to create a "merger of equals." This marked the third attempt by the two exchanges to merge, after failed attempts in 2001 and again in 2004.[28] In July of 2016, LSEG shareholders voted in favor of the merger, in spite of the potential problems resulting from the decision of Britain to exit the EU. An overwhelming 99.89pc of voting shareholders supported the deal. [29]

But the merger ultimately fell apart after it was blocked by the European commission on the day that Britain served notice on its EU membership, because the regulator said the deal would create a "de facto monopoly in the crucial area of fixed instruments." Margrethe Vestager, the EU competition regulator, had asked LSE to sell its Italian trading arm, MTS, to ease competition concerns for the merger, but the LSE and Deutsche Boerse refused to meet her requests. [30]

On December 27, 2016, the Financial Times reported that The LSE Group would sell its French clearing arm, LCH, to Euronext in a cash deal worth about €510m, hoping to smooth the way for the Deutsche Boerse merger. LSE offered to sell LCH SA, formerly known as Clearnet, in September 2016 to ease antitrust concerns. The LSE wants to keep the UK arm of LCH, which clears interest rate swaps, and link it with Deutsche Boerse’s Eurex, which clears futures.[31]

On March 9, 2017, the LSE announced it would launch an additional market, called the International Securities Market (ISM), for the issuance of primary debt targeted at institutional and professional investors. It will be a multilateral trading facility that will operate alongside LSE’s other markets. The launch of the ISM expected in Q2 2017, subject to regulatory approval.[32]

Key People

Contract Volume

Year Total Annual Derivatives Volume Percent Change
2015 48,879,243 (-) 3.2%
2014 50,492,691 .2%
2013 50,384,211 (-)26.5%
2012 68,584,760 (-) 20.5%
2011 86,285,501 (-) 2.4%
2010 88,433,932 --


Derivatives Exchange Volumes

Name Year Total Annual Volume Percent Change
Borsa Italiana 2015 44,372,766 13.6%
2014 39,047,196 20.1%
Name Year Total Annual Volume Percent Change
Turquoise Derivatives 2015 4,506,477 (-)60.6%
2014 11,445,495 (-)36.0%

References

  1. London Stock Exchange Group PLC. Bloomberg.
  2. LSE CCPs opt for globeSettle as collateral venue. FTSE Global Markets.
  3. FIA Annual Volume Survey. FIA.
  4. History. LSE.
  5. LSE prepares for freedom from Nasdaq bid. Financial Times.
  6. LSE in talks with Borsa Italiana. Financial Times.
  7. Qatar bows out of OMX battle. Financial Times.
  8. LSE Names Xavier Rolet as New CEO, Replacing Furse. Bloomberg.
  9. New Chief Rolet Wields Axe At LSE. Financial Times.
  10. LSE Unveils Turquoise Acquisition. MSN Money UK.
  11. LSE Hires Emirdag as Head of Professional Business Development. Bloomberg.
  12. LSE's Pinar Emirdag Departs Exchange After Three Years. Bloomberg.
  13. LSE offer for TMX receives boost. The Financial Times.
  14. TMX, LSE Terminate Merger Deal. WSJ.com.
  15. LSE’s Rolet quits board of LCH.Clearnet. Financial Times.
  16. LSE extends control of LCH.Clearnet. Financial Times.
  17. LSE to Buy Rest of FTSE. The Wall Street Journal.
  18. Pearson sells £450m stake in FTSE to London Stock Exchange. The Telegraph.
  19. LSE: A bigger cheese. The Financial Times.
  20. London Stock Exchange to Buy U.S. Asset Manager Frank Russell for $2.7 Billion. The Wall Street Journal.
  21. LSE to conclude Russell deal within weeks. The Financial Times.
  22. CBOE Holdings to Launch New Options on Three FTSE Russell Indexes October 20. CBOE.
  23. LSE to Sell Russell Investments for $1.15 Billion. The Wall Street Journal.
  24. Bigson-Smith to step down as LSE chairman. The Financial Times.
  25. London Stock Exchange Group launches new derivatives venture – CurveGlobal. LSE Group.
  26. London Stock Exchange launches 'LinkedIn for corporate access'. Financial News.
  27. LSEG Acquires XTF. London Stock Exchange Group.
  28. Deutsche Boerse lines up swoop for LSE. Financial Times.
  29. London Stock Exchange wins shareholder support for Deutsche Boerse deal. The Telegraph.
  30. London Stock Exchange and Deutsche Börse merger blocked by EU. The Guardian.
  31. LSE to sell French clearing arm to Euronext. The Financial Times.
  32. London Stock Exchange Group Announces New International Securities Market. LSE.