Tonight:
9°c
When Xavier Rolet took over from the redoubtable Clara Furse as London Stock Exchange chief executive in late spring, the question most observers expected him to tackle first — apart from the need to take cost out of the organisation — was how to compete with the growing number of alternative trading venues such as Chi-X, Turquoise and BATS.
These are trying with some success to eat its lunch, and are likely to continue to make inroads into LSE market share because their systems are in some cases faster and capable of handling much larger volumes. Something had to be done, and hints were dropped that we should expect developments in the autumn. This to some extent accounts for the recent flurry of stories hinting at imminent action from the Exchange. However, none as yet has explored my own favoured solution — that the LSE buys BATS' European operation to get its hands on its superior technology or makes that organisation an ally through a joint venture.
We will no doubt know soon enough which way the Exchange decides to jump. But the focus on electronics has led to the neglect of what in many ways is a more intriguing issue — the possibility the LSE might ride to the rescue of the London clearing house LCH.Clearnet. Were this to happen, it would be hugely symbolic, given that established wisdom in London for the past decade has been that exchanges should not control clearing organisations, in contrast to established wisdom in most of the other markets in the world that they should.
Something certainly needs to be done. After a flurry of publicity earlier this year, LCH has slipped into limbo. It was briefly a hot property when the world's regulators indicated that one way to improve the stability of the financial system would be to channel as much as possible of the currently off-market derivatives business through a central clearing system. LCH looked well-placed to pick up a major slice of this business, and before long a consortium of investment banks came along and tried to bid for it — in what turned out to be a laughably inept attempt at a deal.
It was, however, enough to derail a potential merger LCH had planned with US clearing organisation DTCC. This would have put LCH under American control — and, more to the point, probably made it subject to American regulatory interventions into a business that had not touched America's shores. This was something the European banks in LCH's customer base were not prepared to tolerate. That left LCH asserting its independence but without any clear sense that it was a sustainable business, given the tensions among its owners and customers and the additional demands that would come with a deeper involvement in derivatives.
It became hard to focus on what might be good for LCH amid the Byzantine politics of the securities industry, where all the players were determined to resist any change that might undermine their own businesses. To complicate things further, the Financial Services Authority, the French regulatory bodies and various banking regulators also had their own ideas of how things should evolve.
An involvement with LCH could give the London Stock Exchange the links into the derivatives business it craves. But there is a view that derivatives exposures at LCH could be too large for comfort unless the organisation got banking status. But that in turn opens up a further set of issues and complications.
If any of this was easy, it would have been sorted months ago. It drags on because it is almost impossible to see a way through, given all the conflicting interests. But Rolet is nothing if not determined. It would be a brave call to bet against him.
Gold price climb pointing to pain
I had a voicemail message from Peter Hambro, the gold miner, yesterday to tell me he had been invited to appear on that afternoon's Radio 4 PM news programme to talk about the gold price soaring through $1000.
This was not vanity on his part but a justifiable leg-pull. The last time he appeared on the programme some five years ago, I was in the opposite corner. Gold was below $500. He argued correctly that it was cheap and would go up. I argued wrongly that it was fully valued and should go down — which, if nothing else, explains why the programme invited him back not me.
What I don't understand though is why gold should be going through the roof if the world is recovering. Part of it is, of course, a reflection of the devaluation of the dollar in recent years, and more immediately there is a technical position in the markets with one of the biggest producers having decided to unwind a massive hedge.
But putting that to one side, what the gold price seems to be saying is that while more and more people seem to believe that the worst of this economic downturn is behind us, there appear to be considerable doubts in the minds of all those buying gold. Either they think there is worse to come or — and this probably amounts to the same thing — they reckon the cure will turn out to be worse than the disease.
