February 11, 2011 8:11 pm

Natural evolution led to ‘merger of equals’

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
Xavier Rolet, chief executive officer of the London Stock Exchange

Exchanging ideas: Xavier Rolet, left, and Tom Kloet came to an understanding ‘probably around September or October’ last year

For someone who has – by his own admission – “probably had 10 hours sleep in the last four days”, Xavier Rolet looks remarkably fresh.

The chief executive of the London Stock Exchange has just arrived back at the LSE’s headquarters, bringing with him his counterpart at the company that operates Canada’s main exchange, Tom Kloet.

In those four days this week the world of exchanges has been turned upside down. A tense equilibrium that had existed over the past five years between rival exchanges on both sides of the Atlantic was broken when Mr Rolet and Mr Kloet unveiled a merger that would create the world’s largest bourse by number of companies listed, and the largest platform for mining and natural resources listings.

Less than 24 hours later, their deal was dwarfed when Deutsche Börse, Europe’s largest exchange, unveiled a merger with NYSE Euronext, operator of the 218-year old New York Stock Exchange.

Did Mr Rolet know this was coming? “It was totally coincidental,” he says. “It didn’t surprise me because they had conversations 18 months to two years ago. But I had no idea they were talking.”

The two men have only known each other for about two years, going back to when Mr Rolet succeeded Clara Furse at the LSE. Mr Kloet, a soft-spoken US citizen from the midwest, used to work at a big derivatives broker. Mr Rolet’s background is at Goldman Sachs.

Neither can recall exactly when they agreed to do the deal, although Mr Rolet says it was “probably around September/October last year”, after a “natural evolution” in the discussions.

The emergence of the German-US behemoth wiped news of the UK-Canada tie-up off the front pages. Mr Rolet admits it “probably did take a bit of the wind out of the sails, our share price shifted”. LSE’s shares fell 1.4 per cent to 907.5p on the news of the rival tie-up, but closed up at 933p on Friday.

But he insists that the rival deal creates opportunity for his tie-up with Mr Kloet.

The key part of the NYSE Euronext deal creates the dominant derivatives exchange in Europe by putting Eurex of Frankfurt together with Liffe, based in London. The result is a large derivatives business that will rival one operated by CME Group in Chicago.

Mr Rolet says that the new dominant force will prompt worried customers – the big banks that trade derivatives – to consider ways of limiting its power.

These banks are co-owners with the LSE of Turquoise, a trading platform that Mr Rolet hopes to roll out across Europe, with derivatives as his weapon.

“You’ve got anxious banks who are also shareholders of Turquoise who will have to ensure there is no monopoly in derivatives. So we think we are going to be a pretty attractive alternative and they will have an even heightened interest promoting the emergence of a second competitor.”

In Canada, there have been signs of worry that the deal looks like a takeover of the Toronto Stock Exchange, with LSE shareholders set to hold 55 per cent of a new holding company. But Mr Kloet says: “This is a merger of equals by every stretch of the imagination. I don’t even see how anyone could try to describe it as anything other than that. And it is a friendly transaction. We are not in hostile territory here.”

In the US, New York mayor Michael Bloomberg has backed the Deutsche Börse-NYSE Euronext deal. Asked if that deal is good or bad for London, Mr Rolet says: “There are so many moving parts it’s not a point of comment, I just don’t know. But I would like to know what our mayor [Boris Johnson] thinks.”

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments


Sign up for email briefings to stay up to date on topics you are interested in

Enter job search