I’ve been watching MiFID’s (the Markets in Financial Instruments
Directive) progress in the background over recent months. I say, in the
background, because there’s been so much stuff going on in the stock
markets after Lehman Brothers that it was not something I felt made the
The reason to bring it up now is that it’s a year since its
implementation, and the London Stock Exchange (LSE) hit the news this
week … and it’s bad news, much of it related to the implications of
The first part
of the bad news is that they need to conserve cash and therefore
cancelled their £500 million share buyback scheme. The result was the
share price dropped 10% yesterday, closing at just under £5.20p, well
below the £12.43p offered by Nasdaq in 2006.
That drop is far higher than other major European Exchanges, such as
Euronext and Deutsche Bourse, because the LSE is suffering the bulk of
that attack from the new MTFs (Multilateral Trading Facilities) and
lacks the alternative systems, such as the Eurex Derivatives of the
Deutsche Bourse, to fight back through diversification. Sure, they
have a derivatives subsidiary, but its nowhere near as successful as
This leads on to the other bad news from the MTFs: Turquoise and Chi-x.
Turquoise tell me this week that they are taking 5% of the value of trading on LSE’s most liquid stocks, whilst Chi-x claim to have achieved an almost 30% market ratio of the trading of the FTSE100 in recent times.
And today is the day that BATS Trading sets off, so it’s all pretty gloomy on the equities trading front.
That’s why trading revenue is down 1.25% and trading value down 2%.
Part of the reason for such loss is that the new MTFs offer ‘dark pool’
trading facilities, where orders and bids can be placed on exchange
without visibility until the order or bid is filled. LSE obviously will
compete in this space, and announced the launch of their own dark pool,
Baikal, earlier this year.
Baikal would be a joint venture with Lehman Brothers.
Yes, you guessed it, LSE has to find a new partner for this now and
announced that Baikal would be pushed back a quarter to the fall of
2009 before it would see the light of day.
And it’s not just losing your most liquid stock trading to new
competition that’s bugging them, but also losing the profitable
business that was known as trade reporting to MarkitBOAT.
This should mean that profitability is hit, but instead the Exchange
announced a 30% increase in pre-tax profits, to £127 million for the
six months to end of September! Oh well, looking under the numbers,
part of this profit came from the merger of Boursa Italiana, and
operating profit was up only five percent.
As discussed in September, their CEO, Dame Clara Furse, now looks to be on her way out after seven years at the helm.
has been a good leader through the predatory times when the LSE was
being sought for acquisition by NASDAQ and others. However, you need an
aggressive leader who can fight off new competition rather than
predators, and that’s what the LSE will try to achieve in light of the
new landscape of the post-MiFID markets.
All in all, the LSE faces its most challenging time ever, as do the
other exchanges. I’m not letting NYSE Euronext and Deutsche Bourse off
the hook, just because they are big and diversified. The difference is
that they are better positioned to survive the new threats we see after
MiFID, due to their diversity and global platforms, than the LSE.
All in all, I just hope it does not mean we talk about London’s Old Stock Exchange (LOSE) in the future.