Dubai: This year witnessed a number of high profile global exchange consolidation bids falling apart due to protectionism and regulatory hurdles.
Singapore Exchange (SGX) Ltd and London Stock Exchange Group (LSE) were forced to give up their much publicised bids for Australia's ASX and Canada's TMX Group respectively. Deutsche Boerse and NYSE Euronext deal is awaiting regulatory clearance from the European Commission.
Despite such setbacks and delays, the world's leading exchanges are once again getting ready for more consolidation. LSE has confirmed its bid for London-based clearing firm LCH.Clearnet. There have been reports that LSE and SGX have been evaluating a joint bid for the London Metal Exchange.
Undeterred by the TMX episode, LSE is marching ahead with its bid for LCH.Clearnet.
In an exclusive interview to Gulf News, Xavier Rolet, Chief Executive of LSE Group, said its new acquisition bid makes immense business sense for the exchange and it enjoys the support of its shareholders, including Borse Dubai which owns nearly 21 per cent and Qatar which holds 15.1 per cent.
Gulf News: There were great expectations on LSE's planned merger with TMX. With the deal falling through, where is LSE headed in the global exchange business?
Xavier Rolet: We continue to believe that the TMX deal was a good deal for shareholders of both LSE and the TMX. It would have created a transatlantic partnership. In the end we did not receive enough support.
We were strongly supported by our key shareholders. Of course the proposed national acquisition deal with Maple did create confusion in the minds of TMX shareholders that we were unable to secure that extra 10 per cent of the vote that was required.
We were not prepared to further leverage or change the fundamental terms of the deal in a way that would have been favourable to Canadian shareholders and unfavourable to LSE shareholders. We continue to look for good opportunities. We continue to do well. We are pursuing some other projects. The London Clearing House is one of them.
The merger between Deutsche Boerse and NYSE-Euronext are awaiting regulatory clearance from the European Commission. In the past a host of factors ranging from shareholder activism, regulatory hurdles to protectionism hindered such deals. What is the way ahead for consolidation?
We think the Deutsche Boerse and NYSE Euronext deal is going to get done. It is under the review of European Competition Commission. We actually believe that exchange consolidation will continue.
There have been temporary setbacks linked to the stress in financial markets and increased protectionism. The rationale for creating distribution platforms that can operate with reduced costs and efficiency is still attractive. The economic pressures of competition and the necessity to create connected liquidity pools will support the consolidation moves in the future.
If the Deutsche Boerse and NYSE Euronext deal is going to get done, you could be in a situation where you are facing competition from an exchange colossus that is significantly larger than you. What are your options?
In the US market it does not make much difference to us as the Securities and Exchanges Commission (SEC) is not interested in mutual recognition of regulations. Nasdaq OMX and NYSE Euronext do not have a unified distribution platforms across the US and Europe
On the derivatives business we are not going to be significantly affected by the Deutsche Boerse NYSE merger, which in fact is a merger of Eurex and London International Financial Futures and Options Exchange (LIFFE). These two so far have been unsuccessful in competing with us in the Italian market and outside the Italian market we don't have any derivative business in Europe.
We have created a derivatives platform called Turquoise which is 49 per cent owned by 12 banks and is already making good progress. So we see an opportunity as anti-monopoly moves open markets for our derivatives platform across Europe.
The LSE is currently in talks to buy a stake in clearing house LCH.Clearnet. Does this deal offer more choice of clearing houses in the context that other trading platforms such as Chi-X Europe, Bats and UBS MTF are offering their clients a choice of clearers in a model known as interoperability?
First of all I want to make it clear that it was the LSE that first offered inter-operability. It is only during the past three months Chi-X and Bats started offering interoperability. So, they are just catching up with us. Our derivatives platform Turquoise also offers choice of clearance.
Why does LSE need to own a clearing house while other arrangements can work even without ownership?
Clearing is a very important component of the stock exchange business because of the guarantee it provides and because of the changes in the industry that is going to make it increasingly attractive.
It is attractive for clients to use centrally cleared services to reduce counterparty risks for their transactions and reduce risks to their balance sheets in the over the counter (OTC) derivatives transactions. So it is a significant opportunity to work with banks and clients to expand our capabilities in clearing.
There have been talks about LSE and Singapore Exchange together bidding for London Metal Exchange?
The only thing I can tell people about such news is that don't believe everything you see in the media. I don't think I can comment on that.
The IPO markets across the Europe have been flat for nearly year, how has it impacted your business?
We continue to have IPOs, but it is not as active as it used to be for obvious reasons. So far this year LSE is the leader in public issues. We have raised more than $13 billion from 65 issues. The important thing about IPOs is that the small and mid-size market is still open.
Two of your key shareholders, Borse Dubai and Qatar Investment Authority are from the Middle East region. In terms of stock exchange business what is your involvement in the region?
Our involvement in the region is mostly in the nature of co-operative ventures such as technology participation, cross listing of shares and primary listings of securities from the region.
London being a major global financial centre, listing in London gives regional entities the opportunity to tap global liquidity pools.
Additionally, we also facilitate the linking of regional liquidity pools to global investment opportunities.
There was speculation in the past Dubai would sell some of its investments, including its stake in London Stock Exchange. How do you see the situation now? And what is the kind of support you have from your Gulf shareholders in your consolidation bids?
I think Dubai seems to have really turned the corner. I think the focus now is on consolidating the recovery.
When I talk to international investors, financial services professionals and expats, they say Dubai has become once again a favourite destination. There were difficulties in 2009; there were issues with international perceptions.
But I think Dubai is proving it resilience. It is very important for a mature economy to be resilient and strong not only when times are good but when there are difficulties.
Dubai is being effectively tested like all financial centres have been tested at some point or other. We have had great support from both Dubai and Qatar in all our efforts and they are firmly behind us in our new ventures.
