Xavier Rolet, the London Stock Exchange’s new CEO – and three-time competitor in the Paris-Dakar rally – painted a picture of opportunity at today’s presentation of the group’s financial results for the year to March 2009.
“There is everything to play for,” said Rolet, following the announcement of a £251m pre-tax loss by the exchange group, attributed largely to a one-off £484m charge due to a write-down of the value of Borsa Italiana. The exchange commented that the sterling value of Borsa Italiana is still “comfortably above” the £1.3bn valuation at the time of the acquisition. Although he asserted, “Nothing has been ruled out”, Rolet said that the likelihood of buying a multilateral trading facility (MTF) was “fairly low”, given the exchange’s existing strategy.
Rolet said he “did not intend” to witness a further growth in the MTFs’ share of UK cash equities trading, as the exchange outlined a number of measures to attract liquidity, including high-frequency order flow. Baikal, the exchange’s dark pool, which is due to offer smart order routing from July, will include new functionality to support block trading, but will not permit direct access to buy-side institutions. “Baikal is not a tool for disintermediation,” he told theTRADEnews.com. Previously, the possibility of direct buy-side participation in Baikal had been left open by the exchange.
As well as smart order routing and order matching capabilities, Baikal will also offer sell-side firms a “sophisticated strategy matching” service to reduce market impact when trading large blocks on behalf of buy-side firms. Rolet predicted that Baikal could take up to 25% of cash equity trading flows that would otherwise be internalised by the leading banks.
Separately, Clara Furse, who stepped down from an eight-year stint as CEO after today’s presentation, revealed that the exchange would expand its Exchange Hosting service over the summer. The service, which allows firms to physically locate their servers at the exchange’s data centre for low-latency access to its TradElect and Infolect trading and information systems, will be extended from its current capacity of around 50 racks.
David Lester, the LSE’s director of information and technology services, said that demand was greatest among US-based high-frequency traders as well as banks, either for proprietary trading purposes or to offer their buy-side clients low-latency access to TradElect.
The LSE’s technology infrastructure will also be reviewed to ensure the group can keep up with client demands, including greater capacity and speed of trading. The exchange said capacity had already been increased to 18,000 messages per second this year, resulting in average end-to-end roundtrip times of 3.7 milliseconds.
In addition, Rolet declared a thorough review of the group’s technology infrastructure, including the possibility of replacing its cash equities trading platform. “There is definitely a plan to look at replacing TradElect,” he told theTRADEnews.com. Although it might take just six months to construct a new trading engine, Rolet said that the knock-on effect on any surrounding applications meant that any such new implementation would take at least 12 months.