Stocking up on Data: London Stock Exchange acquires Refinitiv

February 13, 2021

3 min read

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What's going on here?

The London Stock Exchange (LSE) completed its $27bn acquisition of Refinitiv on 29 January 2020. The combined group aims to rival Bloomberg as a leading financial data provider.

What does this mean?

The LSE agreed to buy Refinitiv in August 2019. However, concerns about the effect on competition in the supply of financial data kept the champagne on ice. The European Union kickstarted an in-depth investigation eight months ago surrounding these anti-competitive concerns. On 13 January 2021,  the LSE received the green light. US antitrust watchdogs signed off on the deal last year. However, regulators in Singapore spent some time investigating its impact on currency trading. The LSE awaited all outstanding regulatory approvals, enabling it to close the all-share deal. This was the last major obstacle to a merger that will create a new powerhouse in financial markets.

The rubber-stamping of the acquisition is a result of the LSE’s concessions. The group has opted to sell Borsa Italiana, which runs the Milan stock exchange, to Euronext for £3.9bn. Alongside the agreement to sell its Italian assets, the LSE pledged to provide access to its equities and foreign exchange trading data for ten years. It has also promised to maintain the separation of trading and clearing of derivatives. According to Margrethe Vestager (Executive Vice President of the European Commission), “the markets will remain open and competitive and the acquisition will not lead to higher prices or less choice”.

What's the big picture effect?

The market for financial data has exploded with the rise of computer-driven trading – sparking a wave of takeovers. For example, one of LSE’s rivals – Intercontinental Exchange – delved deeper into data with its $11bn acquisition of Ellie Mae (a mortgage finance tech platform). Companies want to create one-stop shops for clients and get an edge over rivals in the supply of data – dubbed the “new oil”. The current market illustrates the fundamental transformation that stock exchanges have undergone over the last two decades. Public perception clings to an outdated understanding of what stock exchanges are. Former NYSE CEO John Thain once said, “every country has an army, a flag and an exchange”. This position is no longer the case. Gone are the days of them being public marketplaces associated with one country. They have become powerful global companies that actively shape the progression of capital markets around the world.

It begs the question: why do regulators care so much about the LSE’s acquisition of Refinitiv? LSE owns several European trading platforms, including Borsa Italiana and the MTS platform. MTS is a crucial part of the European bond-market infrastructure with average daily trading volumes exceeding £90bn. Together with the MTS bond trading platform, LSE’s purchase of Refinitiv would have created a monopoly in the European government-bond trading market. European sovereign debt is already a political issue – reflected in the tense EU negotiations over a coronavirus recovery fund (see our article on that here). An institution with the power to control this market but resting outside the EU’s regulatory reach (due to Brexit) would have been a disaster for the EU

So with the threat of the LSE’s market dominance gone, the EU gave its approval. However, this saga demonstrates how stock exchanges have become important counterparts to national states. What they own and the decisions they make have grown to become matters of international political importance. Evidently, global financial markets are now more complicated than ever.

Report written by Deniyi Coker

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