The Perils of A Single Product Line


LSE has significant issues in dealing with competition Lack of a significant derivatives platform leaves the exchange with a relative lack of options.


This article says it all. The LSE made a canny takeover of Borsa Italiana which finally gave it some derivatives critical mass (and has helped buoy profits) but the LSE remains a platform too reliant on the (UK) equity marketplace.

Nevertheless, obituaries have been written before and doubtless the LSE will…or rather: an LSE will invariably survive…it may just not be the current incarnation. It is impossible to see London, the world’s most cosmopolitan major financial centre, being without a stock marketplace.

That said, LSE needs to find a way to scythe its cost base apart and given her previous successes in managing some basket case businesses, it is somewhat surprising Clara Furse has not made greater progress. Nevertheless, the future of LSE means it needs strong management and a very dynamic plan to move forward. SImilarly, the LSE exemplifies the perils of the legacy exchange which has a huge cost base against the modern siege warfare exponents in the MTFs.

Then again if the MTFs really destroyed the LSE, what then? Who is going to provide the listing and regualtory functions that the legacy exchanges must provide? The irony is that while they want to feast on its order flow, the MTFs themselves are still reliant upon LSE, and I don’t just mean their umbilical cord due to the lack of a unified “tape” for printing market data!

As an exchange, the LSE looks more at odds with the modern marketplace landscape than it has for many years. Nevertheless, incumbent survival rates have up to now always managed to defy the predictions. The LSE has a number of options and various cards to play. It is far too early to write it off despite a very bruising first round against the new MiFiD inspired competition.


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