LSEG’s FTSE acquisition to deepen index, derivatives penetration
The London Stock Exchange Group (LSEG) has secured full ownership of index provider FTSE International, increasing its share from an initial 50%, in a bid to grow its derivatives and index product offerings.
The LSEG will purchase from London-based media company Pearson the remaining shares it does not already own for total cash consideration of £450 million.
As 100% owner, LSEG said it intends to invest to accelerate growth in FTSE’s tradable index business, expanding the product range and offering FTSE’s products to LSE’s international customer base.
Following the rebranding of its derivatives operations under Turquoise, the multilateral trading facility (MTF) in which the LSEG took a majority stake in 2010, and the exchange’s bid for multi-asset clearing house LCH.Clearnet, the decision to buy FTSE International provides further evidence of an integrated strategy that encompasses clearing, equities, fixed income and derivatives.
David Lester, the LSEG’s head of information services and chairman of FTSE, told theTRADEnews.com that the acquisition of the remaining 50% of FTSE will provide the exchange with full control and greater flexibility to integrate the index company into its existing portfolio of businesses and future strategy.
In the derivatives market, the acquisition will see closer collaboration across the combined LSEG and FTSE businesses to develop index products and derivative contracts to trade against them. The company will develop a joint package of exchange-traded fund (ETF) products to issuers, use the LSEG and MillenniumIT brand and global relationships to develop index licensing opportunities, and develop new fixed income products. FTSE’s real-time calculations and data fees will also be enhanced.
“We are not going to be a EURO STOXX look-a-like. FTSE is a global provider which gives the exchange a global nature to its products,” said Mark Makepeace, CEO of FTSE International. “The industry trends and the appetite for our products are strong. Together with LSE, we will fully focus on geographical and product-driven expansion, further strengthening our offerings in the ETF and derivatives spaces and further diversifying our revenue streams.”
The EURO STOXX 50 index covers a spread of 50 European blue chip stocks and is owned by exchange operators SIX Group and Deutsche Börse, which also owns the German DAX index. Earlier this year Deutsche Börse blocked Turquoise from creating products based on EURO STOXX. Launched in June 2011, the pan-European derivatives market Turquoise Derivatives has so far struggled to grow volumes in a hostile competitive environment, but the MTF hopes regulatory change will help it take on larger rivals. The current text of the European market infrastructure regulation includes text that may force EURO STOXX to permit Turquoise to launch new products, while MiFID II proposals contain commitments on clearing that could allow fungibility.
“Regulation is opening up derivatives products to competition and we welcome this environment,” said Lester.
Richard Perrott, analyst at Berenberg Bank, an independent German private bank, said the organic growth potential was significant. “Indices businesses are a hidden jewel but the question is whether owning the business will help LSE grow it further. That is not necessarily the case,” he said.
“FTSE was founded as an open architecture offering and will continue to remain so – the way other indexes should be,” added Lester. “Regulation is opening up derivatives products to competition and we welcome this environment.”
Ratings agency Standard & Poor’s last week put the LSE’s long-term credit rating on review because of its exposure to Italian banks through Cassa di Compensazione e Garanzia, the exchange operator’s Italian clearing house subsidiary.