Even LSE seems to be heading in the wrong direction

For someone who runs a stock exchange, Xavier Rolet is a big believer in bonds. One of the most prominent acts of the new chief executive of the London Stock Exchange since he took over in May has been the purchase by his family trust of £3.2 million worth of his employer’s 2019 bonds, which bear an enticing 9.125 per cent yield.

But such fixed-income securities could figure in his thinking in other ways — specifically as one of the areas into which the LSE might expand. Its Borsa Italiana offshoot already operates a retail corporate bonds market, MOT, which could be usefully transplanted to London. So, too, could the breadth of equity derivatives traded on its Idem exchange in Milan, a natural next step given the presence of the LSE’s EDX platform in Russian and Scandinavian futures and options.

Elsewhere, Mr Rolet has a clear opportunity to push into post-trade activities, specifically clearing and settlement, where the LSE is a minnow relative to NYSE Liffe and Deutsche Börse, its overseas rivals.

With Mr Rolet only eight weeks in the job, the LSE’s shareholders will have to wait a little longer for his strategic pronouncements. But for now, yesterday’s first-quarter update provided grounds for quiet encouragement. At an above-forecast £162 million, revenues in the three months to June 30 were down 8 per cent on the year, but up 5 per cent on the previous quarter. Post-trade activities in Italy provided much of the boost, with the LSE’s move to cut fees at Idem increasing derivatives volumes by 41 per cent, with a corresponding benefit to clearing. That change raises hopes that the LSE’s lower tariffs for UK equity trading, which come into effect in September, will be similarly well-received.

Of course, the LSE’s wider fortunes remain geared to stock market levels, while revenues from data services are sensitive to City job cuts. But competition from rivals such as Chi-X has been muted to date, the scope for capturing share of the over-the-counter derivatives market is huge, and Mr Rolet is heavily incentivised to succeed. At 676p, or 11 times earnings, buy on weakness.

***my god there we have it...the LSE has finally forgotten what its role is....instead of promoting investment it wants to support the likes of Goldmans by spreading into DERIVATIVES...it'll end in tears***

INSTEAD OF CURBING DERIVATIVES THE LSE SEEMS TO WANT TO CHASE THE RICH PICKINGS THAT THE LIKES OF GOLDMAN SACHS, JP MORGAN CAN PROVIDE. TIME FOR THE GOVERNMENT TO STEP IN & RETURN THE EXCHANGE TO THE (HONEST) UK PRACTITIONERS WHO NAVIGATE THEIR WAY IN THE EQUITY, GILT & BOND MARKETS.