Stock exchange consolidation
The London Stock Exchange on Friday unveiled a deal worth up to €463m to take a majority stake in LCH.Clearnet in a move that boosts its presence in post-trade services, the FT reports. The LSE has agreed to pay €19 in cash per share for up to 60 per cent of the privately held clearing house, which stands between two parties to a trade, ensuring a deal goes ahead if one side defaults. Securing LCH.Clearnet would give the LSE its own clearing house in the UK at a time when the exchange business is dominated by groups that already own their clearing and at a time of regulatory upheaval. Bloomberg reports that talks between the two had been going on for more than six months by the time of the announcement.
The London Stock Exchange is close to agreeing a takeover of LCH Clearnet, with an announcement possibly as early as Friday morning, the WSJ says. Talks between the two have been difficult and could still founder at a late stage. But the terms of a deal would likely value LCH Clearnet at $1.3bn, with LSE taking a more than 51 per cent stake in return for the opportunity to make a bigger play for the derivatives market.
Italy’s top financial regulator has cast doubt on the long-term success of the London Stock Exchange’s takeover of Borsa Italiana five years ago, reports the FT. Giuseppe Vegas, head of Consob, said “the merger of the LSE and Borsa Italiana could be a good thing but it has not yet demonstrated good effects”. There were not many capital flows between Italy and Britain, Mr Vegas added, apparently targeting his remarks at equity trading and the small-cap Aim Italia bourse. Borsa’s revenues are 30 per cent higher in absolute terms since the takeover, LSE said.
The European Commission on Wednesday vetoed the proposed $9bn tie-up between Deutsche Börse and NYSE Euronext, scuppering an attempt by the German and US groups to create the world’s largest equity and derivatives exchange. Unveiling a verdict with far-reaching implications for a sector now littered with failed merger bids, Joaquín Almunia, European competition commissioner, said he blocked a “near monopoly” in European exchange-traded derivatives that would stifle competition, reports the FT. Mr Almunia’s decision overcame last-ditch resistance from a handful of fellow commissioners, underlining the clout and resolve of a competition watchdog that is overseeing antitrust investigations involving of Google, Gazprom and some of Europe’s biggest banks.
Duncan Niederauer, chief executive of NYSE Euronext, has admitted he “misjudged” European antitrust authorities’ approach to his exchange’s attempted tie-up with Deutsche Börse, saying there was only a “glimmer of hope” the deal would succeed. His comments are the first sign the German and US groups have all but given up hope that European politicians will approve the deal after Brussels competition officials blocked it this month, the FT reports. That decision – backed by Joaquín Almunia, EU competition commissioner – was based on a view that the combination would create a dominant player in derivatives markets in Europe, stifling competition. Of the 26 EU commissioners who must make a final call on the proposed deal by February 1, only about six are understood to sympathise with the exchange groups’ arguments. Meanwhile, Nasdaq’s CEO Bob Greifeld is in Davos and has cautioned that exchanges have to be careful with their M&A activity, reports the WSJ.
Duncan Niederauer, chief executive of NYSE Euronext, has admitted he “misjudged” European antitrust authorities’ approach to his exchange’s attempted tie-up with Deutsche Börse, saying there was only a “glimmer of hope” the deal would succeed. His comments are the first sign the German and US groups have all but given up hope that European politicians will approve the deal after Brussels competition officials blocked it this month, the FT reports. That decision – backed by Joaquín Almunia, EU competition commissioner – was based on a view that the combination would create a dominant player in derivatives markets in Europe, stifling competition. Of the 26 EU commissioners who must make a final call on the proposed deal by February 1, only about six are understood to sympathise with the exchange groups’ arguments
Deutsche Börse and NYSE Euronext have thrown down the gauntlet to the European Commission members who will decide on their faltering merger plans, warning that the EU would be acting against its own interest in better global regulation if it were to block the deal, the FT reports. In a letter to Jose Manuel Barroso, the Commission’s president, the chief executives and chairmen of the two companies cast their proposed tie-up in strongly pro-European terms, saying it would help global financial market reform as well as economic growth regionwide. Reto Francioni, chief executive of Deutsche Börse, and Duncan Niederauer, his counterpart at NYSE Euronext, said their exchanges had already proved “a bridgehead of integrity and transparency against a tidal wave of opacity and greed that permeates the less-regulated segments of financial markets”.
European competition officials have recommended blocking the tie-up between Deutsche Börse and NYSE Euronext, the German and US exchange operators, the FT reports. Joaquín Almunia, the European competition commissioner, has told the merger parties that he plans to prohibit the bid to create the world’s biggest exchange group by listings unless they are willing to sell one of the groups’ main derivatives businesses – a step executives refuse to take. Much lobbying to salvage the deal is now anticipated, but FT Alphaville says it could be the first sane Brussels competition ruling in some time.
The Commodity Futures Trading Commission is looking at the actions of CME Group as part of the regulator’s inquiries into the collapse of MF Global, says NYT Dealbook, citing people briefed on the matter. CME operates the main exchange used by MF Global, and also served as the commodities brokerage’s primary regulator. It has come under criticism after $1.2bn in customer money disappeared from MF Global. The CFTC is reviewing whether CME’s efforts to verify the safety of customer funds were sufficient, the report says, while CME has said that MF Global may have intentionally produced inaccurate documents. CME has not been accused of any wrongdoing, and the review of its actions may not produce any findings, it says.
In case you missed it, last night Jon Corzine was artfully thrown under what looked like a bomb-strapped bus being driven by the Chicago Mercantile Exchange, with no Keanu Reeves in sight. Terry Duffy, chief executive of CME group, told the Senate hearing on MF Global that the former New Jersey governor “was aware” that money had gone missing from customer accounts.
A few years back, the FSA warned banks to be careful about their choice of code words in M&A deals: Use appropriate code names to disguise the identities of relevant parties. This only works if the code names are sufficiently different from the names of the relevant parties so their real identities cannot be determined.
Tokyo Stock Exchange, operator of Japan’s largest share-trading platform, will merge with the Osaka Securities Exchange, its domestic rival, creating Japan’s largest exchange group and bolstering the TSE’s position as the third largest in the world by market capitalisation of company listings, reports the FT. The proposed combination, expected to be completed by January 2013, was described by the pair as “a step towards the revitalisation of the Japanese economy”. The combined value of stocks listed on the exchanges would be about $3,600bn, trailing transatlantic exchanges operators NYSE Euronext at $12,000bn and Nasdaq OMX Group at nearly $4,000bn, based on data at the end of October. Japan’s two largest exchanges had come under pressure to consolidate as global rivals develop into venues that offer both trading in equities and derivatives. The country, for so long the undisputed largest and most liquid capital market in Asia, faces a long-term threat from China and its maturing exchanges.
NYSE Euronext and Deutsche Börse have launched a high-stakes gamble to assuage serious competition concerns in Brussels over the exchanges’ planned merger with a package of concessions offering rivals partial access to their Germany-based clearing house, reports the FT. After succeeding in overturning some but not all of the concerns expressed by European antitrust authorities, the exchanges have also proposed to sell some single stock equities and futures businesses on both sides of the Atlantic, eliminating an overlap in their businesses.
As expected the star of the show in Wednesday’s half year figures from the London Stock Exchange was its Italian clearing business. Income was up 225 per cent on a year ago, as the LSE sweated the margin posted by clients of Cassa di Compensazione e Garanzia (CCG). By that, we mean the LSE parked the cash (around €5bn) with Italian banks, who are desperate for overnight deposits.
What’s one of the fastest growing parts of the London stock exchange? Answer: its Italian clearing house business. According to Goldman Sachs income from this operation has grown four-fold in only 15 months and it now accounts for as much as a third of group earnings.
US futures exchanges have moved to head off instability in financial markets following the collapse of broker-dealer MF Global by relaxing rules on how much collateral speculators must hold, reports the FT. CME Group and IntercontinentalExchange have temporarily cut the amount of deposits they will require from speculators, including those whose positions were transferred in bulk from MF Global to new brokers late last week. However, former MF Global customers are still being asked to up their margins, says the New York Times. Meanwhile, the missing $600m still hasn’t been found and investors are peeved at bounced checks from the erstwhile brokerage, adds Reuters. And if you haven’t read Izabella Kaminska’s (and John Gapper’s) long analysis of MF Global in FT Weekend yet, well, what have you been doing all weekend?
MF Global, the broker-dealer that collapsed this week, broke rules on keeping customer money separate from its own trading accounts, according to the self-regulatory body that oversaw it, the FT reports. The broker-dealer was at the same time one of the biggest sources of daily volume for the CME Group, which supervised MF Global. Craig Donohue, CME chief executive, said MF Global had failed to meet both CME rules on segregated accounts and those of the Commodity Futures Trading Commission. “While we’re unable to determine the precise scope of the firm’s violation at this time, we are investigating the circumstances of the firm’s failure,” Mr Donohue said.
Hackers who targeted the Nasdaq in 2010 were able to access documents posted by directors of publicly-traded companies, people familiar with an investigation into the matter have told Reuters. Nasdaq OMX previously said that no customer information was compromised during the attack. The hackers were able to spy on Directors Desk, a piece of software where companies can store confidential data and communications. “Scores” of directors may have been affected, the people said. Nasdaq OMX spends nearly a billion dollars a year on anti-hacker protection.
US market structure watchers may have noticed something very interesting occur this week. On Oct 12, the NYSE Euronext filed a proposal to the SEC to create a new “Retail Liquidity Pilot Progam“. According to Joe Saluzzi at Themis Trading, this can best be described as the NYSE Euronext’s very own “internalisation” programme.
The London Metal Exchange has been approached by more than 10 suitors and expects to open its books for inspection in early December, Martin Abbott, chief executive of the exchange, told the FT. The LME, which hosts the futures contracts used as global industry benchmarks for base metals from copper to nickel, is seen as the last great prize in a wave of consolidation as exchanges seek to capitalise on booming interest in commodities. Likely bidders include CME Group, the US exchange, SGX, the Singapore exchange and IntercontinentalExchange, a CME rival, the report says, citing people familiar with the matter. LME shareholders are hoping for a valuation of £1bn or more.
The London Stock Exchange has succeeded in its attempt to take over LCH.Clearnet after the clearer’s board favoured the UK bourse over Markit, the rival bidder, the FT reports. LCH.Clearnet’s 21-member board, which met on Monday, approved the LSE’s offer of up to €21 a share for 51 per cent of the clearer, which is one of the most prized assets in the clearing business.The deal, which must still be approved by LCH’s 98 shareholders, marks a coup for Xavier Rolet, the chief executive of the LSE who took over from Dame Clara Furse in 2009. It comes after he failed this summer to clinch a merger with TMX Group, operator of Canada’s exchanges. The LSE and LCH.Clearnet declined to comment.
Deutsche Börse and NYSE Euronext, the exchange operators planning to create the world’s largest bourse, have significantly raised their estimate of savings by banks from the deal, saying customers would save about $1bn more than previously estimated. Duncan Niederauer, NYSE Euronext chief executive, told the FT customers collectively would not have to post about $4bn in money as “margin” in the clearing process through the combination of the exchanges’ two European derivatives platforms – Eurex and NYSE Liffe. The groups had estimated that customers would be able to post $3bn less than they do now. The disclosure comes as the merger undergoes intense scrutiny by European antitrust authorities.
The head of the largest US futures exchange has labelled derivatives that track the price of traditional commodity futures “parasitic”, stoking tension over proposed US curbs on speculators, the FT reports. Craig Donohue, chief executive of Chicago-based CME Group, said that pending US rules limiting commodity speculation would prompt banks and hedge funds to abandon futures that require physical delivery and pour money into contracts that settle in cash. The reason for this, he said, was that the US commodity regulator had proposed allowing traders to hold five times more cash-settled contracts than traditional futures contracts. “What you’re doing is you’re encouraging people to leave the physical delivery, price discovery contract and move to what I would call a parasitic, second-order derivative,” Mr Donohue told the Financial Times. CME’s exchanges list leading physical commodity futures, including West Texas Intermediate crude oil, natural gas, corn and soyabeans.