LSE will take a 60% stake in pan-European trading platform Turquoise and merge its own Baikal system, giving London an edge over rival exchanges Euronext and Deutsche Borse
The London Stock Exchange (LSE) has confirmed that it is taking on the job of turning around the pan-European share trading platform that nine investment banks set up to provide it with more competition.
The exchange will take a 60 per cent stake in "Turquoise" and merge it with its own project "Baikal", which had been expected to compete with Turquoise. The nine existing shareholders will continue to hold 40 per cent and will receive no money from the LSE for its stake.
However, the exchange will invest £20m into the project, which in 2008 lost £15.7m and has had to call on its owners for repeated injections of cash.
Turquoise was launched by Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Bank of America Merrill Lynch, Morgan Stanley, UBS, BNP Paribas and Société Générale in response to what they argued were excessive fees from the LSE and its rivals.
However, while it did succeed in getting the LSE to reduce its charges, the operation has struggled, proving much less successful than rival trading platforms such as Chi-X, which have been eating into the market shares of traditional exchanges.
The LSE is hoping that it can use its technical expertise and operating experience to turn that around. It will also have a leg up on rivals such as Euronext and Deutsche Börse in offering such a pan-European platform as a result of the deal.
But arguably more important than either is the relationship it could help the LSE to rebuild with major customers. Relations between the LSE and its biggest users have become increasingly strained in recent years and repairing them has been made a priority by the LSE's chief executive, Xavier Rolet.
The LSE plans to offload up to 9 per cent of the venture's equity to "interested parties", which could include other customers not presently part of the project. Mr Rolet is slated to become chairman of the venture when the deal completes. He said yesterday: "We are very pleased to be joining forces with a number of our major clients in a partnership which we believe will offer an attractive range of innovative and competitively priced products and services across Europe.
"The European marketplace for trading securities has scope to become more efficient and to grow significantly in the coming years. Turquoise's existing pan-European footprint is a strong proposition and together with the introduction of new trading technology and a neutral structure, we believe it is now well positioned to be an agent of change and to capture a healthy slice of the market's growth potential."
Shares in the exchange operator, which also owns Borsa Italiana, finished down 11.5p at 706p on news of the deal.
Phil Hylander, head of principal strategic investments at Goldman Sachs, said: "The renewal of a partnership with the London Stock Exchange is a major step forward in the evolution of pan-European market structure." He said it was "critical" for competition that ventures such as Turquoise survive.