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Articles on this Page
- 03/26/15--08:00: _Markets riled after...
- 06/19/15--03:32: _LSEG appoints Donal...
- 06/25/15--01:07: _LSEG buoyed by rise...
- 08/04/15--23:46: _LSE profit soars on...
- 09/14/15--08:58: _HSBC latest to with...
- 10/08/15--11:14: _LSE Group to sell R...
- 07/27/17--10:33: _Snap's been bl...
- 08/01/17--16:05: _IoD urges City watc...
- 08/03/17--01:26: _London Stock Exchan...
- 08/08/17--00:18: _Water under the bri...
- 08/14/17--04:55: _LSE launches new cl...
- 08/15/17--04:13: _City worker dies af...
- 08/28/17--21:00: _Look closely: Londo...
- 08/31/17--09:00: _UBS analysts back L...
- 09/07/17--16:01: _Westminster heavywe...
- 09/13/17--13:14: _London Stock Exchan...
- 10/17/17--03:54: _LSE chief: ECB'...
- 10/19/17--00:08: _The chief executive...
- 10/19/17--22:00: _Xavier Rolet's...
- 10/22/17--12:10: _New York Stock Exch...
- 03/26/15--08:00: Markets riled after Saudi Arabia launches airstrikes in Yemen
- 06/19/15--03:32: LSEG appoints Donald Brydon as its new chairman
- 06/25/15--01:07: LSEG buoyed by rise in volumes
- 08/04/15--23:46: LSE profit soars on Russell integration
- 09/14/15--08:58: HSBC latest to withdraw as Aim nomad
- 10/08/15--11:14: LSE Group to sell Russell Investments for £752m
- 08/08/17--00:18: Water under the bridge? LSE and Euronext in new clearing tie-up
- 08/28/17--21:00: Look closely: London's stock market is shrinking
- 09/13/17--13:14: London Stock Exchange Group ups its stake in LCH Group
- 10/17/17--03:54: LSE chief: ECB's new euro clearing rules will cost investors €20bn
- 10/22/17--12:10: New York Stock Exchange owner ICE to buy RBS' stake in Euroclear
Tensions in the Middle East stirred global markets today pushing nervous investors into safe-haven assets.
Investors sought safety in gold, pushing bullion prices up to a two-and-a-half week high of $1,219.40 an ounce, on news that Saudi Arabia and its Gulf Arab allies had launched air strikes in the Yemen city of Aden.
Meanwhile, the dollar fell against traditional safe-haven currencies such as the Swiss franc and Japanese yen. The greenback fell to a five-year low against the yen, falling as low as 118.33 yen, before recovering a little.
The uncertainty also caused Brent crude, which is the global benchmark, to jump as high as $59.78 per barrel, taking the black stuff to a two-and-a-half week high.
However, across the world stock markets suffered, as investors poured out of the typically riskier asset class.
The pan-European FTSEurofirst 300 index extended losses, after shedding more than one per cent yesterday, and it was trading down 1.3 per cent at 1,566.05 points this afternoon.
The FTSE 100 was trading down 1.4 per cent to 6896.55 points. And the French Cac 40 was 1.3 per cent lower, while the German Dax was down 1.7 per cent.
Over in the US, stocks had opened lower this afternoon, with the S&P 500 erasing its modest gains for this year.
London Stock Exchange Group (LSEG) has appointed Donald Brydon as its new chairman.
Brydon has an impressive CV, having served as chairman of Royal Mail as well as spending 15 years at AXA, where he occupied a number of roles. He will be replaced at Royal Mail by Peter Long, co-chief executive of travel company TUI.
The appointment comes after current chairman Chris Gibson-Smith announced he will step down after 12 years.
Brydon will join the board immediately, but won’t take on his new responsibilities until 1 July. Gibson-Smith will remain until that date, and will stay on the board until 31 August.
Gibson‐Smith added that it had been an honour to serve as chairman:
I am delighted that Donald will be joining the board of London Stock Exchange Group, and succeeding me as chairman. His significant board experience, knowledge of our dynamic industry and his personal qualities will be invaluable.
Being asked to become chairman of one of the world's most respected and ambitious financial organisations is a real privilege. I am looking forward to working with a great team and playing my part in helping guide London Stock Exchange Group to further success.
Things were looking up for London Stock Exchange Group (LSEG) in the five months to the end of May - although volumes were less encouraging on its junior market.
New issues on LSEG's main markets were up 29 per cent in the period, while average daily UK equity value traded was up eight per cent to £5.3bn. On the FTSE, total ETF assets under management benchmarked up 14 per cent to $236bn (£150.2bn), while the same figure on newly-acquired index provider Russell rose 22 per cent to $157bn.
Read more: Happy birthday Aim
However, the exchange's junior market, Aim, is suffering after several debacles - including the woeful tales of Quindell and Afren - caused new issues to plummet 53 per cent.
Meanwhile, activity at its Italian businesses rose 11 per cent, although clearing volumes were up seven per cent, while initial margin held increased nine per cent, averaging €11.9bn (£8.5bn).
And clearing house LCH.Clearnet, delivered a strong performance, with a 28 per cent rise in the clearing of credit default swaps.
Why it's interesting
What with the Greek crisis and a still-faltering recovery in Europe, equities have had more ups and downs than Alexis Tsipras' suitcase in recent months.
In December last year LSEG bought the Russell business, and has spent the last six months integrating the business into its current operations - with the result that in May it launched FTSE Russell, the new integrated name for the combined businesses of the FTSE Group and Russell indexes. Today it said that integration was progressing well.
Aim celebrated its 20th birthday this month, but figures from Hargreaves Lansdown have suggested it is currently 24 per cent below its opening level - although HL also highlighted the success stories to come out of the market, including Asos, Majestic Wine and Domin's Pizza.
What LSEG said
Xavier Rolet, the business' chief executive, said:
The group remains well positioned for the changing regulatory and competitive landscape and continues to develop a broad range of opportunities to serve our clients globally on an open access basis. We are focused on achieving integration and efficiency benefits, both from the acquisitions we have made and organically, including the many initiatives highlighted in our post trade strategy update last month.
Equities may be shaky as economic woes continue to shake markets, but LSEG is well grounded.
Shares rose 2.44 per cent after the group's first half earnings were boosted by its recently acquired global indexes business FTSE-Russell.
The London Stock Exchange Group (LSEG) said pre-tax profit in the six months ending 30 June rose 20 per cent to £205.2m, mainly due to strong growth in its global indexes business FTSE-Russell.
Adjusted operating profit rose 27 per cent to £366.1m, from £288.8m during the same period a year earlier.
Europe's oldest independent bourse said revenue rose 90 per cent to £1.16bn, from £611.5m during the same period a year earlier.
The group also hiked its interim dividend by 11 per cent to 10.8p per share.
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Why it's interesting
The Greek debt crisis, Chinese stock market turmoil, and some heavy hints regarding an interest rate rise by the Bank of England and the US Federal Reserve have provided plenty of drama in equity markets lately.
In December last year LSEG bought the Russell business - and in May it launched FTSE Russell, the new integrated name for the combined businesses of the FTSE Group and Russell indexes. Today is said it was making "good progress with integration and development" of this.
Earlier this year the LSEG appointed Donald Brydon as its new chairman. He already had an impressive CV, having served as chairman of Royal Mail as well as spending 15 years at Axa.
It also emerged that the group's biggest shareholder, Borse Dubai, was selling its entire stake in the company, leaving Qatar Investment Authority as the LSEG’s biggest shareholder with a 10.3 per cent stake.
What the London Stock Exchange Group said
Xavier Rolet, the group's chief executive, said:
Our global indexes business, FTSE Russell, has shown strong growth, and there have been positive underlying results in other information services products, as well as capital markets and Italian Post Trade.
LCH.Clearnet has made further solid progress in the development of its OTC clearing services. Despite currency headwinds, our diversified global business has delivered good returns.
As a leading international, open access market infrastructure business we continue to see attractive opportunities for growth in a changing regulatory and competitive landscape.
It looks like the LSEG's acquisition of the Russell Investments in December last year is beginning to pay off - with it helping lift revenues as much as 90 per cent.
HSBC is the latest bank to leave Aim, the London stock exchange’s market for smaller growing companies.
The bank has withdrawn its status as a nominated adviser (nomad), making it the latest major banking adviser to be leaving the Alternative Investment Market.
HSBC hasn't had any clients on the market for over a year, and decided not to continue paying for the nomad licence.
Several large investment banks joined up to become Aim nomads during the commodities supercycle, but the tide has turned, and HSBC’s departure is just the latest part of a larger exodus from Aim.
Goldman Sachs, Deutsche Bank, UBS and Merrill Lynch have also dumped their nomad role on the market in the past two years.
Others, like PwC and Deloitte are “inactive nomads”, holding adviser licences without any clients.
HSBC declined City A.M.'s request for comment on the news.
The London Stock Exchange Group has agreed to sell asset manager Russell Investments to US private equity firm TA Associates for £752m.
The London Stock Exchange initially announced its intention to sell Russell Investments, which it acquired when it bought the Frank Russell investment firm last year, in February.
The group expects the index business to be completely separated from Russell Investments before the sale takes place in the second half of 2016.
The deal is still subject to customary closing adjustments, as well as regulatory and other required approvals.
Private US Investment firm Reverence Capital has joined TA Associates, and will make a significant minority investment in Russell Investments.
"We are delighted to partner with such an established and highly respected market leader in the investment management industry,” Todd Crockett, a managing Director at TA Associates, said.
"We believe that the breadth of Russell Investments’ investment and implementation operations, as well as its orientation to multi-asset and solutions investing, will continue to be a differentiator and driver of growth in the marketplace going forward."
Russell has $266bn (£173bn) under management, and made a pre-tax profit of £28m in the six months to 30 June.
The London Stock Exchange reported pre-tax profit rose 20 per cent to £205.2m during the same period.
Snap has been blocked from featuring on indices by FTSE Russell because it does not offer shareholders any voting rights.
The group took the decision after concerns were raised by investors on the back of the tech company's IPO, with the Investment Association also urging MSCI Global and S&P Dow Jones to exclude firms with non-voting shares.
The London Stock Exchange Group owned FTSE Russell is the first to come to a decision on the matter, deciding that companies in the benchmark must offer non-restricted shareholder voting rights of at least five per cent from September.
It means funds linked to indices will not be forced to buy shares in companies in which they have no say. It also applies to newly listed US tech company Blue Apron, while existing companies in the indices which do not reach the threshold, such as Dell, Hyatt Hotels and Tinder owner Match Group, will be given five years in which to amend the voting rights.
FTSE Russell said it "believes that the proposals set out in this document represent a pragmatic compromise between those that believe the Snap IPO set a dangerous precedent for companies to come to the market with few, if any, voting rights attached to their securities, and those respondents who believe the role of the index provider is to represent the investable opportunity set as comprehensively as possible."
The move comes as the first of Snap's lockup periods comes to an end. That means shareholders such as pre-IPO investors, founders, employees and banks who were underwriters of the listing can now cash out for the first time and a flood of new shares could hit the market.
Snap's lockup ends on Saturday with Monday 31 July set to be the first day of trading after it ends. However, Edison analyst Richard Windsor said investors will be less keen to get rid of them as there has already been a big sell off.
Read more: Snap, crackle, flop: Snapchat shares drop
Snap shares are down more than 40 per cent and below their IPO price of $17. Short interest in Snap fell in July, compared to the previous month, when it was found to be the most shorted tech stock of the year, due to the high cost of borrowing making it less attractive for short selling according to research by S3 partners. It estimates between 10 and 30 per cent of the 420m early investor shares will hit the market. A further 800m could flood the market by the end of August.
Facebook shares were mixed when several lockup periods expired after its IPO in 2012. Stock rose more than 10 per cent when its biggest tranch of 800m shares hit the market. At the time it was 45 per cent down on its IPO price. But shares dipped around four per cent after an initial lockup period ended beforehand, releasing around 270m shares.
Twitter shares fell by nearly 18 per cent when its lockup ended and more than 500m shares were made available, while LinkedIn slipped three per cent when 24m shares were sold.
The City watchdog is today urged not to bend London listing rules to accommodate what is expected to be the world’s largest ever stock market flotation.
The Institute of Directors (IoD) has gone public with its opposition to Financial Conduct Authority (FCA) proposals that would pave the way for oil giant Saudi Aramco to list on the London Stock Exchange next year, valuing it at up to $2 trillion (£1.5 trillion).
The FCA plans, allowing state-owned companies like Aramco to qualify for a premium listing with less onerous disclosure and regulatory rules, were put forward for consultation in July.
In its response to the watchdog, published today, the IoD said listing rules should not be “watered down” for sovereign wealth funds, warning this would risk the UK’s global reputation for corporate governance.
It cautioned of the possibility of “politically-motivated ownership interference over the company by the state apparatus” and suggested national governments would be in a position to undermine the rights of minority shareholders.
IoD director general Stephen Martin suggested the rule changes could be “interpreted as an opportunistic attempt at boosting short-term primary issuance which ignores the longer-term implications for the overall UK corporate governance regime”.
But Mark Austin, a capital markets partner at Freshfields Bruckhaus Deringer, defended the FCA rule changes. With Brexit on the horizon, he said the UK needs to be “even more nimble and creative and street-fighterish” than in the past to retain its position as a global listing venue.
Austin told City A.M. that the proposed rule changes will leave in place “protections of the premium listing regime”.
He added: “Plus it’s very unlikely that any of these companies will be eligible for inclusion in the FTSE UK indices, so investors won’t have to buy them. It will be a genuine case of caveat emptor and that if you don’t like the look of the entity, just don’t buy it.”
Saudi Aramco, a sovereign-held entity, is thought to be heading towards a dual listing, floating five per cent of its shares through an initial public offering (IPO) in Riyadh and London or New York next year.
In addition to the IoD, fund management bodies such as the Investment Association (IA) and the International Corporate Governance Network (ICGN) have expressed opposition to the FCA proposals.
IA boss Chris Cummings warned that the shake-up “could impact on London’s reputation and future as one of the world’s leading financial centres”.
ICGN policy director George Dallas told City A.M.: “The rules shouldn’t be bent... The idea of labelling this as premium is potentially deceptive and misleading.”
Mark Field, Tory MP for the City of London and Westminster, told City A.M.: “It is understandable that some in the City are keen to attract such substantial IPO business, but the IoD are wise to remind us why we have a listings code.
“Other than the size of the Saudi Aramco deal, it is not clear the exceptional circumstances that apply here [should] persuade the authorities to rip up the rulebook.”
London Stock Exchange boss Xavier Rolet today defended the Financial Conduct Authority (FCA) review of listings rules that could pave the way for a Saudi Aramco mega-float.
The Institute of Directors this week joined the Investment Association and Royal London Asset Management in speaking out against the proposals, which would ease rules for state-owned companies like Aramco when they list in London.
Speaking after the stock exchange reported its half-year results today, Rolet backed the review, adding: “It should be a surprise to no one if listing rules are from time to time refreshed by the regulators to take into account the reality we live in.”
The LSE posted growth across all of its core business areas in the first half of 2017, showing it certainly didn't need Deutsche Boerse in order to thrive.
The exchange announced its revenue was up 18 per cent to £853m, as adjusted operating profit grew by 20 per cent to £398m.
It revealed it would boost the interim dividend by 20 per cent to 14.4p per share, and a £200m share buyback is still ongoing.
"The group has produced a strong financial performance, with good income growth across all of our core business areas," said chief executive Xavier Rolet.
"As well as continuing to deliver organic growth, during the period we announced the acquisition of The Yield Book and Citi Fixed Income Indices business."
The LSE also completed the acquisition of US data and analytics company Mergent.
Why it's interesting
The FTSE Russell indexes and LCH over-the-counter clearing services saw particularly strong performance, with each business generating double-digit growth.
Underlying operating costs also increased by five per cent, but the LSE said it was "benefiting from ongoing cost savings and integration efficiencies".
Its adjusted net debt-to-earnings ratio showed 1.2-times leverage, which the exchange said was a "strong balance sheet position".
Perhaps in a bid to allay any Brexit fears, Rolet referenced the LSE's "open access" focus ahead of the implementation of the new Markets in Financial Instruments Directive (Mifid II).
Open access is one of the key elements of Mifid II, according to the LSE, including "the ability of investors to choose where to trade and clear their products, by preventing exchanges and clearing houses from operating a 'closed' silo model".
What the analysts said
"We maintain our 'outperform' rating based upon LSEG’s growth profile, balance sheet deployment, and cost base optionality," said Peter Lenardos at RBC Capital Markets.
"We remain confident in our forecasts, regardless of market conditions and regardless of the regulatory environment, mostly because it is our opinion that LSEG is exposed to structural growth drivers, such as mandatory central clearing and increased demand for benchmarks, analytics and data solutions."
Pan-European exchange Euronext has signed a clearing deal with the London Stock Exchange, putting water under the bridge between the two companies.
As part of the 10-year agreement, Euronext has terminated its derivatives clearing contract with the Intercontinental Exchange (Ice), which owns the New York Stock Exchange.
In addition to the agreement, Euronext has agreed to swap its current 2.3 per cent stake in the LSE’s LCH Group for an 11.1 per cent shareholding in its French clearing arm, LCH SA.
“This transaction will strengthen the long-standing relationship between Euronext and LCH SA, and cement the strategic future of LCH SA,” Euronext said.
The tie-up comes nearly six months after Euronext’s deal to buy LCH SA in its entirety broke down. The €510m (£460m) deal was dependent on the completion of the LSE’s failed merger with Deutsche Boerse.
Euronext chief executive Stephane Boujnah said today: “This agreement is a long-term and sustainable solution for the clearing of our derivative markets.
“It also provides Euronext with a sizeable ownership position in a leading multi-asset [clearing house] based in the Eurozone with strong positions in the fast growing fixed income and [credit default swap] businesses.
“Our clients will benefit from a reduction in clearing fees and the continuity of service avoids the cost and disruption associated with a migration.”
The agreement covers the clearing of financial derivatives and commodity derivatives for the next 10 years.
The groups said this would provide continuity and avoid the costs and disruption of migrating to a different platform “at a time where client bandwidth is stretched due to MiFID2 implementation and Brexit planning”.
Euronext and LCH SA will work together to develop new products for the benefit of clearing members and market participants, and to focus on providing a lower cost service for members.
They also plan to cut clearing fees to 15 per cent from January 2019, depending on each specific product and service, to help “improve the competitive landscape and encourage increased trading volumes”.
The London Stock Exchange Group’s clearing house, LCH, has launched a new clearing service to improve efficiency and reduce risks for customers.
LCH said the new CustodialSeg account, under its SwapClear service, will enable buy-side clients to deliver collateral directly to the clearing house, rather than going through a clearing member, as part of a transaction.
Aviva Investors is the first buy-side client to use the new account type and JP Morgan is the first clearing member to take part. This means that Aviva, when transacting, will post its collateral directly to LCH rather than doing so through JP Morgan.
In order to deliver collateral straight to LCH, Aviva and other clients must open a segregated account with an International Central Securities Depository (ICSD). Euroclear Bank is the first ICSD to provide this service for the CustodialSeg account.
LCH said the new service “increases operational efficiency and also eliminates the transit risk arising where a client delivers collateral to the clearing house via its clearing member”.
Aviva’s Barry Hadingham said: “Being able to lodge collateral direct with LCH is a positive step as it allows us to manage our collateral delivery more effectively and to ensure our assets remain identifiable as ours, while lodged at the CCP [clearing house]. We’re proud to be the first client to use this new account type and look forward to continuing this work with LCH.”
JP Morgan’s Nick Rustad, head of global clearing for the bank, said: “Innovations such as CustodialSeg aim to increase efficiency and reduce risk within the clearing system. JP Morgan is committed to remaining at the forefront of industry initiatives that further these aims and therefore is pleased to be among the first clearing brokers and custodians to partner with LCH in the development of this service for our clients.”
On the clearing member side, both BNP Paribas and HSBC have said they are ready to sign up to the new system.
A City worker has died after falling from the seventh floor into the ground floor atrium of the London Stock Exchange (LSE) today.
City of London police said they were called to the LSE at 9.58am to a report of a man who had fallen from an upper floor.
"London Ambulance Service attended and the man was pronounced dead at 10.10am," said a spokesperson for City of London police.
“The City of London Police is currently investigating the circumstances around the death and the incident is being treated as non-suspicious. We are now working to inform the man’s next of kin.”
A worker in the building confirmed he had fallen from the seventh floor, and said the main entrance to the building was closed.
"Everyone is shocked and frightened by what has happened," they told City A.M.
As well as being home to the London Stock Exchange, 10 Paternoster Square is also the address of Numis Securities and the Takeover Panel.
“We can confirm an incident this morning where a London Stock Exchange Group colleague fell from an upper floor balcony and died," said a spokesperson for the London Stock Exchange Group.
“The emergency services were called immediately and are dealing with the incident. We will continue to offer them every support and cooperation possible.
“Our thoughts and condolences are with the family and friends of our dear colleague. We would ask that the privacy of the family of the deceased be respected at this time. “
Something strange is happening to London’s equity market. In a word, it is shrinking. Steadily, but surely, and over a long period of time. This threatens to have long-term financial and economic consequences for all of us.
This may surprise you since on the face of it everything looks rosy. The FTSE 100 is sitting at over 7,400, not far off its all-time high of 7,547, which it reached in May. Equity funds and investors have been making a killing in recent years – the index has more than doubled since its low point in the financial crisis in 2009. This is against a backdrop of near-zero interest rates for all that time.
Look behind the numbers and a far more troubling picture emerges. The high point for the main market of the London Stock Exchange was not three months ago but 17 years ago – in terms of total market capitalisation. This is surely the best measure of the power and strength of a capital market, rather than the rather subjective and self-selective measurement of an index.
It’s true; in August 2000, the total market capitalisation of the LSE’s main market was £5.3 trillion. Today, 17 years later, it is 26 per cent lower than that, at £3.9 trillion. This, it’s worth stressing, is in nominal terms; the decline in real terms, after adjusting for inflation, is even more precipitous.
The decline on a constant currency basis (since the pound is hardly in rude health) is practically apocalyptic. Admittedly, definitions have changed a little in the intervening years, partly due to Mifid II, but only around the margin.
London floats are falling
The fall in the number of companies listed on the market is also deeply worrying. The main market combined with Aim was at its most crowded in 2007, after a wave of listings through the early years of the century. The total reached more than 3,000 exactly 10 years ago this month.
Today, that number has fallen to around 2,030, a reduction of a third in only a decade.
As for Aim, it seems to be practically melting away before our eyes in terms of listings. Ten years ago, there were almost 1,700 companies on London’s junior market, worth a total of around £100bn. Today, that number has fallen by more than 40 per cent, and although its market value has stayed stable in nominal terms, it is hardly living up to its role as a growth market.
What is happening? The simple truth is that all the IPOs and rights issues we see each year are simply not coming anywhere close to replacing the companies that are taken over, go private or go under. Not to mention the billions in equities that have been retired in recent years through share buybacks and tender offers. We are living in an era of cheap debt, so that expensive equity is out of fashion.
Meanwhile, the relentless rise of private equity has given all companies an attractive alternative to the painful and costly process of an IPO.
There are mitigating factors. I had breakfast recently with the engaging Marcus Stuttard, head of UK primary markets at the London Stock Exchange Group (LSEG), and he explained that some of the delisted equities were investment trusts and property funds, so there was an element of double counting in the earlier figures.
Meanwhile, the shrinking of Aim has been partly deliberate, as more vigorous regulation has weeded out many of the spivs and shysters that the London market could well do without.
Attracting new listings
It is hard to blame the LSE for this long-term decline. It busts a gut trying to attract new listings, since it knows fresh equity is its lifeblood. Given the statistics above, however, is it any wonder that Xavier Rolet, the CEO of the LSEG, is wooing Saudi Aramco so hard to list in London with support from the government and the Financial Conduct Authority (FCA) to bend the rules to admit it? If he succeeds, that listing alone may be the shot in the arm to begin to reverse this long-term decline.
There are bigger forces at work here – in particular the regulatory diktats from the FCA that make it so hard for many types of investment fund, annuities for example and endowments, to be overweight in equities. Instead, it insists they are stuffed with low-yielding government debt.
In the post-financial crisis rush for security, the need to generate returns has almost been forgotten by regulators around the world.
This shrinking equities pool matters for all of us, because equities are a powerful long-term investment.
If your savings are today trapped in a bank or government debt, the chances are you are getting poorer each year as inflation outstrips the returns. Equities, by contrast, provide a long-term hedge against inflation and offer real growth, in dividends and earnings. Equities are also a democratic investment – anyone can buy a share unlike the PE funds that are closed to all but a few.
To reverse this decline, the LSE needs help, especially against the backdrop of Brexit. Help from the government and regulators to attract global businesses to list in London, knowing they have access to the deepest capital pool, against a backdrop of fair and consistent regulation.
Help also from the City’s investment community that needs to be willing to embrace new listings and recognise that equity is risk capital, that isn’t always compatible with predictable returns and box ticking governance.
Not so long ago, the City looked like it could become the world’s equities marketplace, when companies from Shanghai to Johannesburg were queueing up to list their shares on the LSE. It could still be, but we are in serious danger of letting it all slip through our fingers.
Analysts at UBS are backing the London Stock Exchange Group to acquire “hidden jewel” settlement house Euroclear.
In a 35-page note, they estimated that the group would need to pay around €6.7bn (£6.1bn) to land the firm.
In a note out today, analysts Michael Werner and Alex Leng also suggested the acquisition would be a blow to Deutsche Boerse, which owns Clearstream, Euroclear’s main competitor.
The stock exchange has previously said it could be interested in operating an international central securities depositor (ICSD).
The paper, in part a response to speculation over a deal, noted that the London Stock Exchange Group has “established an excellent track record in M&A deals” under chief executive Xavier Rolet.
“Over the past five years, LSE has implemented an acquisition and diversification strategy that has been best-in-class amongst its European exchange peers,” they said.
“The acquisitions of LCH.Clearnet in 2013 and Russell Investments in 2014 played an important role in the positive re-rating of LSE shares since 2012.”
They added that the market expects the London Stock Exchange Group to continue making acquisitions but that opportunities may now be harder to come by with “many other exchanges… looking to expand into similar areas of the market”.
The analysts added: “This begs the questions, are there any more hidden jewels like LCH or Russell Investments remaining for LSE to acquire?
“With a number of other exchanges attempting to adopt LSE’s acquisition strategy, we believe there are not many attractive transformational opportunities in the index or clearing house space.”
They concluded that an acquisition of Euroclear would provide a nine to 10 per cent boost to the stock exchange’s earnings.
Two political heavyweights have cranked up the pressure on the City watchdog over its plans to shake up listing rules which could pave the way for a Saudi Aramco mega-float.
The chairs of the influential Treasury and Business, Energy and Industrial Strategy select committees, Nicky Morgan and Rachel Reeves, have written to Financial Conduct Authority (FCA) boss Andrew Bailey demanding further information on the plans, including how far they have been influenced by Saudi Aramco.
The debate over the FCA rule changes, which would allow state-owned companies like the $2 trillion-valued Aramco to qualify for a premium listing with less onerous disclosure and regulatory rules, is dividing the City. While the London Stock Exchange is in favour of the changes, the Institute of Directors (IoD) and Investment Association have come out against them.
A Chartered Institute for Securities and Investment (CISI) survey of more than 200 financial services professionals has found a slight majority are opposed to the FCA proposals.
Some 36 per cent said the changes would send a message that the UK’s “morals are for sale”, while 18 per cent said they show “desperation because of recent political events”. Some 45 per cent said the rule changes were a good idea.
CISI chief executive Simon Culhane said he is “broadly supportive” of efforts to lure Aramco.
Making the letter to the FCA public today, Morgan warned that stock exchange listing rules for sovereign-controlled companies must not “dilute the protection afforded by the ‘premium listing’ brand”.
“The UK has a world-class reputation for upholding strong corporate governance,” she said. “The FCA must protect this reputation, especially as the City looks to remain competitive and thrive post-Brexit.”
Reeves added: “As we leave the European Union, it’s important the UK seizes new opportunities for business but it should not be at the expense of diminished corporate governance standards.”
The intervention, which comes ahead of the end of the FCA’s rule change consultation next month, was welcomed by the IoD.
“Nicky Morgan and Rachel Reeves are right to scrutinise the proposed changes to the listing rules for sovereign-controlled enterprises,” said Stephen Martin, director general of the IoD.
“We remain unconvinced by the FCA’s justification for these changes, and fear that they could undermine the credibility of the UK’s widely respected corporate governance framework.”
A London Stock Exchange Group spokesman said: “Providing discretionary access for investors to a broad range of UK and global companies is fundamental to the effectiveness and competitiveness of UK primary markets and to London’s role as the most international financial centre.”
An FCA spokesperson said: “The FCA can confirm it has received the letter and will respond in due course.”
The London Stock Exchange Group has announced it has reached a deal to bolster its hold on clearing house LCH Group, by purchasing several stakes owned by minority shareholders.
The exchange said it had agreed to buy the holdings of several, as yet, unnamed shareholders, for up to a maximum of 6.8 per cent of LCH's share capital.
The LSE added that all shareholders have been notified of the share sale in the update, made after the market's close.
It said confirmation of the LSE's total shareholding in LCH as a result of the acquisition will be announced "in due course". Up until this announcement, its shareholding was 57.8 per cent, which it has held since taking control of LCH back in 2013.
Last month, pan-European exchange Euronext agreed to swap its 2.3 per cent stake in the LSE's LCH Group for an 11.1 per cent shareholding in its French clearing arm, LCH SA.
“This transaction will strengthen the long-standing relationship between Euronext and LCH SA, and cement the strategic future of LCH SA,” Euronext said.
The tie-up came nearly six months after Euronext's deal to buy LCH SA in its entirety hit the buffers. The deal was dependent on the completion of the LSE's failed merger with Deutsche Boerse.
LCH has been in the spotlight since the Brexit referendum, as it is the main venue for processing euro-denominated swaps, but will no longer be within the European Union when the UK leaves in March 2019.
New supervision rules on euro clearing proposed by the European Central Bank (ECB) will cost investors €20bn (£17.8bn), the chief executive of the London Stock Exchange has said.
Xavier Rolet told a conference organised by the EU securities watchdog this morning that new clearing rules will cause the market to fragment.
Reuters reported that he said: “The potential proposal to fragment and separate the clearing of euro denominated derivatives would lead to a deteriorating execution price of somewhere in the region of €20bn in additional cost to EU based investors... per annum."
New supervision rules
Rolet's comments come after the ECB proposed new rules which would give it regulatory power over the euro clearing market, which is currently dominated by London.
Under the new rules, it would be able to monitor and address perceived risks associated with clearing that could affect its monetary policy, the operation of payment systems and the stability of the euro.
The proposals stepped up an escalating war between the City of London and its European counterparts over the euro clearing market.
Earlier this month Deutsche Boerse's clearing house, Eurex, unveiled a new programme under which its biggest customers will be rewarded with a share of its revenues.
What is euro clearing?
Clearing is the process through which financial transactions are settled, between the promise of a payment and the payment itself. Euro clearing refers to the clearing of euro-based transactions.
The clearing of euro-denominated derivatives, in particular, is big business for the City of London, which dominates an estimated 90 per cent of the market.
The ECB failed in 2015 in an attempt to require big clearing houses to leave London for the Eurozone after a three-year court battle.
However, the Brexit vote immediately reignited the issue, with politicians including then-French President Francois Hollande calling for it to be moved on to the bloc.
In June the ECB said it wanted to amend central banking rules to give it regulatory powers over the market, essentially allowing it to monitor and address perceived risks associated with clearing which could affect its monetary policy, the operation of payment systems and the stability of the euro.
The boss of the London Stock Exchange Group (LSEG) has announced he will step down by the end of December 2018.
Xavier Rolet has spent nearly nine years in the role. The board said it will now initiate the process of finding a successor.
"I am extremely proud of all we have done together in just under a decade to turn LSEG into a truly global financial market infrastructure group," said Rolet, who joined the group from Lehman Brothers.
By adhering to our core values of partnership, innovation, open access and integrity, we have shown the hugely positive contribution capitalism can make to all of society.
I would also like to thank the board and our shareholders for supporting this strategy. Establishing relevance and leadership in a consolidating global industry cannot be achieved without taking certain risks and making bold moves.
Donald Brydon, chairman of LSEG, said: "Under [Rolet's] leadership, LSEG has been transformed in scale to become a truly diversified and international leader in financial markets infrastructure.
"LSEG remains well positioned for the opportunities ahead and remains confident of delivering further success and value for shareholders."
Almost a decade ago, with a market capitalisation of just £800m and a share price of around 500p, the London Stock Exchange (LSE) was locked in a period of inertia. Enter Rolet.
Rolet, who took up the reins of the LSE in 2009, swiftly became a popular figure in the City, and he was a transformational force for the LSE, helping the bourse rocket to a market cap to £14bn with stock worth 3,875p.
With decades of experience in finance at the likes of the Lehman Brothers and Goldman Sachs, Rolet revamped the LSE’s strategy to focus on areas outside of equities trading.
“Xavier Rolet restored the LSE’S pride, respect and global influence,” said David Buik, a market commentator at Panmure Gordon.
“He was a colossus as a leader with his investment banking background, providing real impetus in developing this exchange. There have been more international IPOs, much better technology and greater attention paid to the Aim.”
Catherine McGuinness, policy chair of the City of London Corporation, called Rolet a “true champion” for the city of London.
In recent years, Rolet has gained notoriety for campaigning to bring the Saudi Aramco mega-float to London, attempting a huge merger with Deutsche Boerse that was ultimately blocked by the European Commission and staunchly defending London’s lucrative euro clearing market during Brexit talks.
“He has been a frank voice explaining some of the technical risks and pitfalls facing us as a result of Brexit,” McGuinness added.
“There is no doubt his hard work and leadership has ensured that London remains the global destination for raising capital and listings.”
Mid-October is not a great time for the City, it turns out. Yesterday was the 30th anniversary of Black Monday; it was during October 2007 that we began a headlong plunge into the global financial crisis.
And yesterday, horror of horrors, one of its central institutions, the London Stock Exchange Group (LSE), announced the impending departure of its boss.
By the time he steps down at the end of next year, Xavier Rolet will have been chief executive for nine years. During his time at the company, he has become an increasingly fierce defender of his adopted city. This has become more important since the Brexit vote, as rival centres – including his former home, Paris – gang up to thumb their noses and attempt to steal London’s finance crown.
Rolet’s departure will come at a delicate time for the LSE, which is not only fighting on behalf of the Square Mile, but is also waging a parallel war over euro denominated clearing. The European Central Bank is threatening to seize control of London's prize clearing sector with proposed new rules around oversight. Such a move represents a direct threat to the LSE and its clearing house, LCH Group, which oversees a vast portion of euro clearing activities.
Although investor confidence in the City has been strong since the referendum, comments by the likes of Goldman Sachs chief executive Lloyd Blankfein, who tweeted yesterday that he will be “spending a lot more time” in Frankfurt, do not help.
As the former chief executive of Lehman Brothers’ French arm, Rolet knows a thing or two about crisis management, and has proven as much since the Brexit vote. The fact London Stock Exchange Group’s share price has risen more than 50 per cent since last year's referendum is testament to this.
In Rolet the LSE has someone who can speak on behalf of the City, but can equally see things from a Continental point of view; someone who may have opposed Brexit during campaigning, but after the event calmly took on the challenge of preparing the company for a life outside the EU.
So the LSE has an unenviable task when it comes to finding his replacement. The Frenchman himself has not said what he will do next, but he will be missed.
Intercontinental Exchange is closing in on a deal to buy the Royal Bank of Scotland’s (RBS) four per cent stake in Euroclear.
ICE, which owns the New York Stock Exchange, is expected to buy the bank’s shareholding in the settlement house for a price estimated at around £200m by analysts.
Sky News reported that a transaction could be announced as early as this week.
RBS, which is due to report third quarter results this week, is one of around 130 shareholders in the privately held clearing house, which has major branches in the capital, Paris and Amsterdam, along with its headquarters in Brussels.
Euroclear has previously been dubbed a “hidden jewel” by UBS analysts, and plays a vital role in the world’s financial markets.
In August, UBS analysts identified Euroclear as an appealing takeover target for the London Stock Exchange Group, which announced last week that its boss Xavier Rolet, will step down next year.
Analysts said an acquisition of Euroclear by the London Stock Exchange could provide a nine to 10 per cent uplift to the stock exchange’s earnings.
Last year, the Euroclear group posted turnover of €655 trillion (£585 trillion). In the first half of 2017, the group held nearly €28 trillion in assets for clients, with 196m netted transactions processed annually.
ICE and RBS declined to comment.