The London Stock Exchange - Prey and Predator

Abstract

The London Stock Exchange (LSE) has been an institution caught in the midst of political, economic and technological change. Systemic changes sweeping through the industry have set off chain reactions of demutualization, consolidation and diversification. The LSE has not been immune to these changes, yet, it still stands more or less alone.Adaptation, for a mutual association with such a long history of independence and such hidebound attitudes, was not easy. However, as compromise became a necessity, and later, unavoidable exposure to global change became a reality, the LSE found its feet in the new world order. As ambitions of creating truly global exchanges grew, suitors also became more savvy about how they approached the notoriously “hard to get” LSE. This paper explores the factors dictating the responses of the LSE to the pressures of change. It is a cautionary tale, highlighting, among other things the importance of institutional culture and personalities in the exchange business. As large and significant financially as exchanges may be, they are small, potentially closed worlds in other respects. In the case of the LSE, the imperial past has also played a part. Rather than looking outwards to engage internationally, as NASDAQ and the NYSE were obliged to do, the City of London instead brought the world (in the form of diversity of the markets, expertise and human capital) to London. The most recent of a long string of merger negotiations, that of the LSE and Deutsche Bӧrse, will test this strategy. Will the commercial and institutional forces supporting the merger be strong enough to overcome the political and regulatory uncertainty produced by Brexit? This paper appears as a chapter in a longer study, funded by the Centre for International Finance and Regulation (Sydney, Australia), which chronicles the major exchange consolidations of the last decade, successful and unsuccessful.