LSE – ALEX BRUMMER: The London Stock Exchange plots a global future

The London Stock Exchange (LSE), along with much of the rest of the financial services industry, is being left to plough its own furrow in Britain’s trading relationship with the EU.

Among the immediate impacts is the loss of equivalence, which previously allowed shares in EU-domiciled companies, including those in British Airways owner IAG, to be directly traded in the City.

That is among the reasons why as much as £5.5billion of trades appeared to have moved to the Continent this week.

It is vexing that other global markets, such as the New York Stock Exchange, have mutual recognition. 

Fortunately, the LSE saw this coming and set up a parallel platform in Amsterdam, through which it believes many of the trades which have moved to the Continent will be conducted.

The view in the City that the greater liquidity offered by the London connection will win the day. To keep itself competitive, the London exchange is developing new streams of income.

Of immediate importance is final clearance for the $27billion (£19.7billion) merger with data and trading powerhouse Refinitiv, the former Reuters system. 

This will enhance the LSE capacity to generate data, improve trading capacity in foreign exchange and government bonds, and move the focus from Europe to North America and Asia.

A price of winning EU approval for the deal was selling Borsa Italiana because of competition issues with Refinitiv’s bond platform Tradeweb. 

The LSE believes that after a pandemic era, when markets have been flooded with bonds, Tradeweb is a real international opportunity.

The other leg of the LSE’s post-Brexit strategy is to re-engineer the shape of the FTSE 100. It is currently dominated by energy and bank shares and lacks tech stocks.

The LSE favours a change in London’s listing rules to allow founders in tech companies to bring companies to market with a free float of less than 25 per cent of the stock and two classes of shares – so long as there is a sunset clause when voting rights are normalised.

The LSE has met fierce opposition from The Investment Association, which represents UK big battalion investors. 

The LSE’s response is to note that these same investors happily hold shares in Facebook and Tesla, which have two classes of shares, when they are quoted in New York.

Some might call that humbug.

Different class

Insolvency firms want to make sure workers get paid and best value is achieved for creditors.

If the criteria of business continuity, track record and governance were applied, then the consortium bidding for Arcadia, headed by Simon Wolfson and Next, would win hands down.

As much as one admires the audacity of Mike Ashley and his Frasers group, it has too much on its hands already. As for Boohoo, even though it has a brilliant online model the clouds of weak governance and unethical sourcing still have to fully clear.

Next has shown an agility in the pandemic, with its combination of online and bricks-and-mortar, which leaves competitors stuck in the mud.

Next chief executiuve, Simon Wolfson, is famously prudent. But the revision of his original projection of an overall 35 per cent drop in sales and no profits to a 16 per cent revenue decline and £370million of underlying profits is stunning. 

That is driven by a 38 per cent jump in full price online sales at a time when competitors have been discounting.

But it would be foolish to take the minor league 1.1 per cent drop in sales in the run-up to a near-lockdown Christmas as any guide to what is happening elsewhere.

The 8 per cent surge in shares to their highest ever, at 7500p should give Next plenty of firepower if it wants all, or bits, of Arcadia.

Glorious food

The old dowager Marks & Spencer has had little to celebrate in recent times.

It deserves credit for the timing of its much-criticised deal with Ocado, which saw a 36.5 per cent jump in sales in the period to December 27. 

Ocado topped a league where customers spent an unprecedented £11.7billion on groceries in the last four weeks.

There were no dunces, according to the researchers Kantar, but Morrisons, Iceland and German no-frills Lidl were standout performers. A third lockdown means a chance to make hay again.