To get around competition issues and costly mergers, exchanges continue to look at creative solutions to build their market share as incumbent bourses like the London Stock Exchange seek ways to expand their global presence.
The LSE has been in talks with exchanges in Singapore and Australia about trading shares listed on each others’ venues, according to a report in the Financial Times last week.
“The potential deal is a good move for the LSE,” said Per Loven, head of international corporate strategy at Liquidnet Europe, a buy-side focused block trading broker that operates one of the world’s largest dark pools.
“Exchange consolidation has been on the agenda for quite a while but it is proving a lot harder than originally thought. These type of alliances are absolutely a reaction to that. When it becomes too hard to complete mergers, you look at other innovative solutions to enhance your position and strengthen your offering.”
Last month, the European Union blocked the proposed merger between NYSE Euronext and Deutsche Börse. The deal would have created the world's largest stock exchange operator, but the European Commission blocked it because it said it would have created a “near monopoly” in European financial derivatives.
Loven believes that the growth of alternative venues, or multilateral trading facilities, such as BATS Chi-X Europe, which have blossomed since the integration of financial markets across Europe under the EU’s 2007 Markets in Financial Instruments Directive, has meant that the incumbent exchanges have had to up their game.
“It is absolutely a response to the growth of alternative exchanges in Europe,” said Loven. “If we go back five years, exchanges did not have real competition. They have since felt competition in an unprecedented way, which means they are now looking at new ways to compete and improve their offerings.”
Loven highlighted the deal struck last July between Liquidnet and SIX Swiss Exchange, Switzerland’s principal stock exchange, that enables the safe and efficient execution of large block trades between members of the exchange and institutions trading with Liquidnet. “This is an example of a way to offer the market something new and innovative,” said Loven.
The LSE has been in aggressive mode in the past few years, looking to expand its business. Earlier this month, it agreed to buy a majority share in London-based independent clearer LCH.Clearnet as it aims to establish a foothold in the lucrative clearing market. In recent years, it has also tried to attract foreign companies from across the globe to list in London, as well as buying rival European exchange Turquoise, a multilateral trading venue, and Sri Lankan technology provider MillenniumIT.
Last June, the LSE scrapped plans for a £2.3bn merger with TMX Group after failing to win enough support from the Toronto stock exchange’s shareholders.
The LSE declined to comment on the matter.