London Stock Exchange CEO says ‘hard to think’ about big mergers

The LSE has had to open an EU base in Amsterdam for its London-based pan-European share trading platform Turquoise. (Reuters)
Updated 05 June 2019
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London Stock Exchange CEO says ‘hard to think’ about big mergers

  • Schwimmer raised expectations of big deals, but he has instead focused on relatively modest transactions, like taking a small stake in settlement house Euroclear
  • The LSE has failed several times to merge with rival Deutsche Boerse, the most recent attempt ending with David Schwimmer’s appointment as CEO last August

LONDON: Big cross-border mergers in stock exchanges look “hard” given political opposition to opening up bourses to foreign ownership, London Stock Exchange Group Chief Executive David Schwimmer said on Wednesday.
“There have been some big painful failures out there in the industry,” Schwimmer told the annual FIA IDX derivatives industry conference.
The LSE has failed several times to merge with rival Deutsche Boerse, the most recent attempt ending with Schwimmer’s appointment as CEO last August. The deal failed in part because of opposition from local politicians in Frankfurt.
A former Goldman Sachs banker of 20 years, Schwimmer raised expectations of big deals, but he has instead focused on relatively modest transactions, like taking a small stake in settlement house Euroclear.
“There will continue to be this nationalistic focus on exchanges in particular. I think it’s hard to think about doing big cross-border exchange-type transactions. It just feels challenging for the industry,” Schwimmer said.
LSE has had the “luxury” of double-digit organic growth in businesses like clearing and information services for years and this is likely to “persist,” Schwimmer said.
M&A is part of the toolkit, but the exchange will be “careful about it, be very strategic about it, very disciplined about it,” Schwimmer said.
Curve Global, 40% owned by the LSE and aimed at breaking the dominance of Deutsche Boerse and ICE in interest rate futures in Europe, was finally making headway after “bumping along the bottom” since its launch in 2016, he said.
“We are getting traction now,” Schwimmer said.
After its launch market participants became tied up with preparing for the European Union’s new MiFID II securities rules and then for Brexit, he said.
“As we got to the end of last year and the beginning of this year, we have seen a substantial pick-up in volume, a couple of hundred percent growth rate on an annualized basis.”
Market share is about 10% in some products, rising to 40% in futures based on Sonia, the new benchmark for replacing sterling-denominated Libor, he said.
“I would attribute it to market desire to have competition,” Schwimmer said.
The LSE is “very prepared” for Brexit, he added. The exchange has had to open an EU base in Amsterdam for its London-based pan-European share trading platform Turquoise.
Schwimmer expects the LSE’s clearing house LCH in London, which dominates euro-denominated clearing in Europe, to obtain permanent EU authorization to continue serving customers in the bloc after Brexit.


Saudi Arabia relaxes ownership limits for foreign investors

Updated 26 June 2019
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Saudi Arabia relaxes ownership limits for foreign investors

  • Capital Market Authority chairman, Mohammed El Kuwaiz said, ownership in the Saudi capital market by financial investors had increased threefold this year
  • The move aims to help enhance the market’s efficiency and attractiveness and to expand the institutional investments base

RIYADH,: Saudi Arabia has relaxed a 49% limit for foreign strategic investors in shares of listed companies, aiming to attract billions of dollars of foreign funds as the Kingdom opens up the region’s largest bourse to a more diverse investor base.
The country has introduced a raft of reforms in recent years to make its stock market, the region’s biggest, attractive to foreign investors and issuers.
The move aims to help enhance the market’s efficiency and attractiveness and to expand the institutional investments base, the regulator, the Capital Market Authority (CMA), said in a statement on its website.
The Saudi stock market, which opened to foreign investors in 2015, has seen an upsurge in foreign fund flows since the start of the year due to its inclusion in the emerging markets indexes.
“In the beginning of this year, we had only one percent ownership in the Saudi capital market by financial investors, today it is over three percent, that’s more than a threefold increase,” CMA chairman, Mohammed El-Kuwaiz told Reuters in an interview.
“Our hope is that we can see a similar increase in terms of pace and magnitude as we start to create more avenues for foreign investors to come in to the market,” he added.
There will be no minimum or maximum ownership limit, although the owners must hold the shares for two years before they can sell.
Kuwaiz said huge demand from non-financial foreign investors pushed the CMA to grant approval on an exceptional basis to a number of strategic foreign investors to increase their holdings in Saudi listed companies. These included transactions at an insurance firm and a local bank.
Foreign investors have been net buyers of Saudi equities over the past few months, with purchases worth 51.2 billion riyals ($13.6 billion) until May 30. They currently own 6.6% of Saudi equities, of which 3.15% is owned by strategic foreign investors.
Local shares were incorporated into the FTSE emerging-market index in March and the MSCI emerging market benchmark in May this year. The country’s Tadawul All-Share Index is up 11 percent year-to-date.
Strategic foreign investors can take stakes in listed companies by buying shares directly on the market, or through private transactions and via initial public offerings.
Asked how this move would reflect on the Aramco IPO, planned for 2021, Kuwaiz said it would assure that the market has the physical regulatory and investor infrastructure to accommodate a company as large and as extensive as Saudi Aramco.