London's Financial Pre-Eminence Under Threat?
Wednesday, August 03, 2011

In the wake of his group's failed merger with the Toronto stock exchange operator, the head of the London Stock Exchange Group has warned of the difficulties the UK could face were the planned Deutsche Börse-NYSE Euronext deal to go ahead.

In an interview with the Financial Times on July 31, Xavier Rolet said that the merger represented a medium- to long-term threat to the UK which is not fully understood. Rolet warned that the UK holds less sway in European regulatory bodies than it ought to, meaning that the country's "voice" in Europe is not "in keeping with the size London and the UK represents".

He said that there is a "clear mismatch" in the composition of the newly created European Securities Market Authority, where the UK's Financial Services Authority holds 8% of the group's vote. This vote falls short of the two-thirds of financial services activity Rolet says the UK represents in Europe. His comments are timely, with European authorities predicted to soon rule on their future investigation of the merger proposals.

The plans were unveiled in February, when it emerged that, were the deal to go ahead, the combined revenues of the two groups would result in the creation of the world's largest exchange group by that measure. Former Deutsche Börse shareholders would hold 60% of the combined group, with NYSE Euronext shareholders taking 40%. The group will have dual headquarters, in Frankfurt and in New York, but, as Rolet pointed out, "the management, technology and clearing will be in Frankfurt".

It is this outcome that Rolet finds most alarming. He said: "What really worries us is the regulatory framework. When management control, regulatory control, prudential control is overseas; new products, new innovation, new investment decisions are no longer made here [in the UK].”

Rolet argued that European authorities must instead extract concessions from the operators which could mean the survival and growth of rival bodies.