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Patrick L Young Newsletter The Frontier Financier - Prologue
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Deal of the Year: LSE


"Data is a precious thing
and will last longer
than the systems themselves."

- Tim Berners-Lee


Dear <<First Name>>,

With Christmas approaching, it seems appropriate to celebrate ‘Data Claus’ that omniscient bloke in a red outfit with white trimmings who seems to have perfected the sort of Kool Aid required to leverage performance from reindeer. He also has more data than eBay and Amazon combined on global consumerism, making it worthwhile to pay huge golden hellos to even the smallest members of his entourage (mission critical elves) if you are trying to better understand retail sales data.

A while back I mistook St Nicolas for Xavier Rolet at a FESE Convention which is somewhat appropriate as the London Stock Exchange has closed the year with a magnificent data deal - in fact the outright exchange deal of the year! It was a hectic 12 months where few deals actually closed and even then it seemed to be a return to the 1990’s vogue  of cross-town cousin marriage whether in Moscow, or this week Rosario. Elsewhere LSE itself bailed from an attempt to buy TMX while Maple are still endeavouring to acquire the Canadian bourse and of course Australian regulators rebuffed the brave SGX attempt to purchase ASX etc. Overall 2011 was more the boulevard of broken deals than one of mergers masterfully managed. Meanwhile we enter the holiday season with the DB-NYSE tie-up looking like a cliffhanger to be resolved during Q1 2012.

All this activity at the pointy end of the exchange pyramid only served to remind me constantly that most massive market opportunities lower down were still being assiduously missed by the 500 lb gorilla bourses.

However, while still negotiating the highly sensible deal concept of controlling LCH.Clearnet, LSE stole a march in the final trading days of 2011 in hoovering up a gemstone.

The acquisition of the 50% of FTSE which LSE did not own is a beautiful binary transaction in many ways. For LSE it provides what can surely only be a ‘win win’ transaction while for Pearson group it will ultimately be another missed opportunity for an old-fashioned publishing house which is closer to decay than dynamism. However, let’s not dwell on the demise of pinko publishing and concentrate on the positives instead.

Some weeks ago I outlined important issues about  data going forward. In essence, there is more of it than we can possibly imagine and indeed a digital world is only going to be insatiable for ever more data, delivered in all manner of exciting ways, creating market opportunities for all segments of investor and trader alike. The remnants of the sell side ought to like that too as it gives them more things to sell, resulting in higher volumes as well as lots of new exciting shiny structures to be created for all manner of platforms. In a data rich world, everybody can be a winner in this world from LSE to EUWAX, SCOACH and far far beyond.

Equally, LSE want to be a player in derivatives. Completing the LCH deal will help but at the same time having their own stable of frankly under-developed indices can only be a boon. Ironically, it also helps shake up the index business as I firmly believe FTSE will blossom as an in-house LSE business (with outside clients) but will also create opportunity for independent providers of index products. Moreover, there is a case to be made that within FTSE itself greater returns can be made presuming LSE seeks to sweat the asset. Whatever way you look at this deal, it is a brilliant one for LSE and can only help the institution from every angle. The challenge for FTSE CEO Mark Makepeace now is can he fit within the LSE structure and progress or will he choose to move on from a business he has helped grow for so long.

It is often difficult to rapidly discern the directional changes of new management in large exchanges. As we reach the end of 2011, Xavier Rolet is clearly and competently building a critical mass that could yet secure a future for the LSE as an independent exchange on a significant scale across asset classes. The LCH.Clearnet deal is one hurdle to clear ahead. Nevertheless, the scope of the business with Millennium IT, FTSE indices - and therefore a seamless content base for Turquoise derivatives - means the LSE has both opportunity and, increasingly, momentum. True, there have been some outright errors and blind alleys. Resigning from FESE remains a conspicuous omission that ought to be rectified for the good of both LSE and the European marketplace as a whole while of course previous in-house clearing ventures and that TMX deal were not to be.

Nevertheless, the simple truth is that in acquiring FTSE outright, Xavier Rolet has demonstrated his ability to do deals and create shareholder value in several ways simultaneously. In a world where data is becoming ever more dizzyingly important by the millisecond, he and LSE are worthy of considerable plaudit for deal of the year in a 2011 where many deals failed while others sparkled only to deceive and none have so far been able to deliver.

With all best wishes to you and yours for a Very Happy Christmas and (just in case I don’t manage anything next week!) a Very Peaceful and Prosperous New Year!

Thanks again for allowing me to talk at you, it’s been a pleasure.


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About This Newsletter

Patrick L Young is the author of several financial market books such as "Capital Market Revolution!" and "The Exchange Manifesto" His Op Eds have been published in most of the world's leading financial media such as the Financial Times and Wall Street Journal while he has appeared frequently on BBC,CNBC, CNN, RT and other digital media throughout the world.

He is a former exchange CEO and serial director of various financial markets businesses. Nowadays he is a keen investor and advocate for emerging markets, particularly the New Europe, as well as advising investors in financial markets infrastructure world-wide.

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