LONDON STOCK EXCHANGE VS EU:
Refinitiv battle reveals unease over power of modern stock markets
R
elations between London and Brussels have been be er. While Brexit dominates the headlines, another cross-channel development has recently captured the a en on of financial ins tu ons. It concerns the the London Stock Exchange’s proposed US$27 billion (£21 billion) acquisi on of US financial company Refini v, into which the European Commission is carrying out an in-depth an -trust inves ga on. With a ruling due in October, the commission is likely to reject the deal in its current form. To win approval, the LSE recently declared it was selling either the whole of Borsa Italiana or its bond-trading pla orm, MTS. Why does the EU care about the LSE’s acquisi on of a US financial data company? And why would the LSE sell the Italian stock exchange to quell these concerns? The answer lies in the fact that stock exchanges have transformed fundamentally over the last 25 years, as I demonstrated in a recent paper. This has largely gone unno ced and public percep on clings to an outdated understanding of what exchanges are.
crucial for na onal economic development. But they have in fact become powerful global corpora ons which actively shape the development of capital markets around the world – with important implica ons for investors, companies and states.
How exchanges changed
Mo s t d e m u t u a l i s e d a n d co n verted into listed companies. As one exchange official noted, they were now independent actors “fully in charge of their own des ny”. At the
Stock exchanges are o en s ll viewed as quasi-public marketplaces – icons embedded within na on states and 84 europeanbusinessmagazine.com
As an ar cle in The Banker put it a few years ago: “Until the 1980s, exchanges would … have been recognisable to a merchant who was trading in the 14th century – the me of their incep on.” Exchanges used to be non-profit organisations, controlled by their members, with li le agency of their own. They usually monopolised trading in their area, and were physical trading loca ons, such as the Chicago Mercan le Exchange, pictured below. This has changed in various ways. Financial liberalisation reforms such as the EU Investment Services Directive (1993) created competion between exchanges. No longer monopolies but a marketplace for marketplaces, they were forced to modernise and become more efficient and customer-focused.
same time, they also became profit-driven companies. The shi towards globalisa on also meant more cross-border financial integration. Alongside the growing competitive pressures, there were opportunities to scale up, acquire competitors and venture into new markets. From Chicago to Singapore, futures exchanges started buying stock exchanges and vice versa, plus trading venues for bonds, carbon emissions and commodities. Former NYSE CEO John Thain had once observed that “every country has an army, a flag and an exchange”, but now exchanges were forming huge organisa ons spanning the globe. Finally, exchanges turned from physical trading locations into financial technology companies. Faceto-face interaction on trading floors was gradually superseded by
