The battle for the London Stock Exchange has all the structure of a Jane Austen novel. Miss L.S.E., – a great name and the inheritor of a great tradition. It wouldn’t be the first time though that a suitor has to pay a high price for little more than a grand title. But such purchasers often do not regret their choice.
The battle for the London Stock Exchange has all the structure of a Jane Austen novel. Miss LSE, demutualised in 2000, was only just out in society when she received and rejected an unwanted proposal from OM, a mysterious Scandinavian. Herr DB from Germany was persistent in his attentions, but his suit failed when he was disinherited by his family. The dashing Baron Euronext has always been in the background. Parisian by origin, he has a trading business in Amsterdam, a Portuguese estate and an elegant London residence, Liffe House, adjacent to the Bank of England. But while he left his visiting card, he never quite made a proposal.
The colonial Governor Macquarie, roughneck but rich, pressed his claims but the people who matter made it clear that he would never be accepted in polite society. And last week an affluent and enterprising American, Mr Nasdaq, asked for the hand of our heroine. While the blushing LSE rejected his offer, we sense she is playing hard to get. The combination of Old World breeding with New World brains and money has been the salvation of many European estates.
Other suitors must now put their hats in the ring. Mr Nasdaq’s arch rival, NYSE, may already be on his way to London. He comes from one of the best Manhattan families, more conservative even than Miss LSE’s, but still reeling from the dismissal of the grasping steward, Mr Grasso.
The story is reaching its denouement. Mrs Furse will soon be watching her delightful ward walk down the aisle. Only on the last page will we discover who is waiting for her at the altar. The settlement may exceed £10 a share.
Why is the LSE so much in demand? Much of the answer is found in that first sentence of Pride and Prejudice. It is a truth universally acknowledged that a growing business in possession of a good cash flow must be in want of an acquisition. But in Austen’s day, even the most refined of families would inquire into the antecedents and stability of estates with which they linked their offspring. And so it should be here.
The economics of markets is complex and evolving. Marketplaces are natural monopolies, because both buyers and sellers are drawn to where most business is done. But providing a marketplace is a business only when there is an actual marketplace. Only for idiosyncratic fresh produce – the food market of Rungis and the flower market of Aalsmeer – is this now required. We all know what is meant by the world car market, but only someone who did not know what it meant would ask where it was. You cannot buy the New York art market.
Securities markets are in transition from being personal to being anonymous. The European Union’s Markets in Financial Instruments Directive seeks to remove the regulatory requirements appropriate to a physical marketplace from a world in which most trading occurs in cyberspace. This process is inexorable despite the many vested interests in resisting it.
In this new environment money is made only from the activities associated with the market, and the market is no more, or less, than the sum of these activities. Trading is the most profitable, but trading demands the support of a wide range of ancillary services – listing, broking, clearing and settlement, reporting of trades and of news. The continuing business of what we call exchanges, the bodies that once managed the premises where trade took place, is today some combination of these facilitating functions.
Different exchanges offer different combinations. Nasdaq, Deutsche Börse and the LSE sound as if they are similar businesses with different geographical locations, but they are really different businesses with, prospectively, no geographic location at all. Nasdaq’s competitive position is based on its technology, the business of Deutsche Börse on its continued dominance of clearing and settlement.
And the LSE? A great name and the inheritor of a great tradition. Mr Nasdaq would not be the first suitor to have paid a high price for little more than a grand title. But such purchasers often do not regret their choice.