January 24, 2013 10:55 am

LSE hails pick-up in trading activity

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The London Stock Exchange on Thursday said it had made a “positive” start to the year with the prospect of new capital raisings and a pick-up in trading activity on its main equity, bond and derivatives trading markets.

While acknowledging that it was early in the quarter, the bourse said there were “good indications” of new market listings in coming months while trading on its cash equity, derivatives and fixed income markets were ahead of the same period a year ago.

Like most exchanges, the bourse has been hit by declining trading volumes in the past 12 months as volatility in the market has declined. Volumes in both derivatives and equities markets dropped around a fifth last year, according to the World Federation of Exchanges.

In a trading statement, the group added that overall income rose 6 per cent year-on-year to £208.9m in the three months to December 31, its third quarter. A 44 per cent increase in revenues from information services boosted overall revenues to £179.1m, from £160.8m in the same period last year. The gains offset a 4 per cent decline in its capital markets business to £66.3m in the quarter. The figures were ahead of analysts’ forecasts.

Xavier Rolet, chief executive, said: “The group has continued to benefit from a more diversified range of businesses with particularly strong performances from our information services and our technology operations.”

Mr Rolet added that the group was “pleased with the progress made” on its agreement to buy a 60 per cent stake in LCH.Clearnet, the European clearing house, in a deal worth about €340m.

Last month it negotiated a 25 per cent cut to the purchase price in the wake of tougher-than-expected proposals to tighten capital requirements for clearing houses.

Regulators are keen to ensure clearing houses are able to withstand defaults and prevent brokerage failures from destabilising the financial system. A clearing house stands between two parties, guaranteeing the deal in the event of a default.

By buying a controlling stake in LCH, the bourse will be able to compete with Deutsche Börse and NYSE Liffe by earning profits from fees charged for offsetting the risk in open-ended derivatives contracts, which often last years.

In recent months the deal has passed regulatory and antitrust hurdles around Europe, leaving only letters of non-objection by Dutch and UK authorities. It also requires shareholder approval.

Income from treasury management, one of the group’s more profitable operations in recent years, fell from £33.5m to £27.8m as CC&G, its Italian clearing house, moved more of its cash margin into secured investments.

The group, which has been expanding beyond its original equity trading business, said there were “good indicators” of new capital-raising activity this quarter.

The LSE’s net debt was reduced to £394m at the end of December, or £594m including money allocated for regulatory capital.

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