LSE’s Schwimmer Expects EU to Give Clearing Equivalence to U.K.
(Bloomberg) -- London Stock Exchange Group Plc’s chief said he expects the British capital to remain Europe’s center for clearing trades, despite warnings from Brussels officials and governments on the continent.
David Schwimmer said LSE’s LCH unit, which cleared $1.1 quadrillion of swaps last year, remains a critical element of the European Union’s financial infrastructure even after Brexit. Given the prospect of business bleeding to New York instead of Frankfurt, he’s hopeful that the EU will extend access approval beyond June 2022, when a temporary transition arrangement expires.
“In the past few years, we have seen repeated decisions of temporary recognition, recognizing the importance of LCH,” he said in an interview Friday after the LSE announced the completion of its blockbuster deal for Refinitiv. “We look forward to working with EU authorities to get permanent recognition.”
EU politicians have been vocal in demanding that companies shift euro clearing out of London and into the 27-nation bloc. They have achieved some success, with Eurex in Frankfurt increasing its share of euro clearing to 19%. But business may be moving to the U.S., which has had EU equivalence recognition since 2016.
The potential trickle to New York strengthens the U.K.’s chances of securing its own agreement. Schwimmer said that the trillions in derivatives trading that has moved to the U.S. from London this year was “an unintended consequence,” and it’s “not in the EU’s interest.”
He said LSE was comfortable about staying based in London given the city’s position as a global financial center, with “a practical and effective regulatory regime and a critical mass of expertise.”
Schwimmer also addressed the government’s potential revamp of stock-listing requirements, which comes as some observers complain that technology IPOs are passing London by. The review should enable London to maintain high standards of corporate governance while addressing changes to the market and the desires of companies listing stock, he said.
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The “free float” requirement that a quarter of a London-listed company’s stock be in the public’s hands is too high, Schwimmer said. “Many other markets take a very different approach.”
He also said investors and companies are interested in LSE-listed special purpose acquisition companies. SPACs have seen a boom across the Atlantic, and some observers also want looser rules for those blank-check companies.
As the Refinitiv deal was finally completed Friday, Schwimmer said that he’s now turning his mind to integrating his signature acquisition. The $27 billion transaction, which gained EU approval this month, gives LSE global scale amid surging demand for data and analytics.
The sealed deal marks a departure from a series of failed transactions involving major stock exchanges. In 2017, a tentative plan to combine LSE and Deutsche Boerse AG aimed to create a European champion but was vetoed by regulators for diminishing competition.
LSE-Refinitiv will be a trading powerhouse across fixed income, currencies, equities and derivatives. It will generate about 70% of revenues from data, up from LSE’s current 40%, according to Bloomberg Intelligence. The parent company of Bloomberg News competes with Refinitiv to provide financial news, data and information.
The deal’s completion comes at the end of a frantic week for markets. Retail traders in the U.S., often young and active on social media and new mobile-trading platforms, have sparked mammoth share-price spikes. Schwimmer said market regulators will need to study the current episode.
“Sometimes it’s positive disruption, sometimes negative disruption created by new technology and new social forces,” Schwimmer said.
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