The London Stock Exchange is in exclusive negotiations to buy
rival year old pan-European share trading platform
Turquoise.
The announcement has sparked speculation about whether the LSE's
plans to acquire Turquoise are aimed at eliminating competition,
acquiring new technology or both.
This deal is extremely tactical and opportunistic, incorporating
both aspects of eliminating competition and acquiring technology,
said Bob McDowall, analyst at Towergroup.
Last month, the LSE announced it is to acquire Sri Lankan-based
trading platform company
Millennium IT in a move widely seen as a way of boosting its
competitive edge.
The LSE was expected to replace its Microsoft .Net-based
TradElect platform with a Linux-based system from Millennium
IT, but that may change if the Turquoise deal goes ahead.
"The LSE may be considering combining technologies, but that may
be difficult considering the Turquoise technology is so highly
customised," said McDowall.
Turquoise, set up by nine investment banks, is one of the new
competitors putting pressure on the LSE since
Mifid legislation liberalised the sector.
Within a year, Turquoise has captured about 6% of the market in
trading of FTSE 100 stocks and together with other new platforms
has forced established exchanges to lower their fees.
An acquisition of Turquoise would also help the LSE get buy in
from the banks that set it up in the exchange's initiative to roll
out the
Baikal "dark pool" trading system across Europe.
The increasingly popular "dark pool" exchanges allow traders to
execute shares without displaying the pre-trade prices to rivals,
unlike traditional exchanges.
Baikal is strategically important to the LSE as it fights
growing competition in Europe and the LSE is in talks with banks
about becoming shareholders, including banks behind Turquoise.
According to McDowall, the LSE is unlikely to see a quick return
on investment on the deal apart from eliminating a competitor, but
it could pay off well in the longer term.
With several new stock exchange listings expected next year, the
LSE will be in a much better position to capitalise on that if
Turquose is no longer a competitor, he said.
The LSE's recent and planned acquisitions, as well as its
decision to leave the Federation of
European Stock Exchanges, indicate that the LSE plans to
"plough its own furrow" in Europe, said McDowall.