The rise of nationalism and a negative focus on exchanges has made any future cross-border mergers for the London Stock Exchange Group (LSEG) very unlikely, according to the group’s chief executive.
Recently appointed CEO of LSEG, David Schwimmer, told delegates at the FIA IDX conference in London that the negative focus on exchanges in the wake of increased nationalism means that a merger has become too challenging.
“There have been some big, painful failures out there in the industry,” Schwimmer said. “I think especially in the environment we are in today, with more market fragmentation as opposed to more cooperation across markets, and more nationalism. There will continue to be this nationalistic focus on exchanges in particular. It’s hard to think about doing big cross-border exchange-type transactions. It just feels challenging for the industry.”
A proposed merger between LSEG and Germany’s Deutsche Börse was vetoed by authorities in Europe in 2017 due to concerns that it would create a de factor monopoly, particularly in fixed income instruments. It was the third failed attempt by LSEG and Deutsche Börse to merge.
“LSEG has done some very shrewd and well-received M&A which really helps develop the business model,” Schwimmer added. “It is a very good team at the LSEG that has been very good at that, and given my background it’s something I feel very comfortable with. We generally think of it as a tool in the toolkit, but we’ll be very careful and disciplined about it.”
The former Goldman Sachs banker, who took up the role of CEO at LSEG in August, also discussed his thoughts on Brexit during the keynote interview. LCH has been granted temporary equivalence by the European Commission ahead of the UK’s departure from the European Union, but this is due to expire in March 2020. Although Schwimmer stated confidently that he expects permanent equivalence when EMIR 2.2 comes into force at some point in 2020.
“Under EMIR 2.2, we expect to receive permanent recognition to continue operating as a third country CCP and continue serving our EU customers from LCH Ltd. There may be some technical gap between when the temporary recognition would expire and EMIR 2.2 comes into force, but we are certainly engaged with the regulators on that and we expect there would be a technical extension there,” Schwimmer said.
“From our perspective there has been a lot of time and energy and focus on [Brexit], but I think it’s been a healthy discussion for the market and regulators and market participants to understand the importance of clearing and importance of a single collateral pool.”