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TechvisionAugust 1 2013

CIO tells of LSE's growth by acquisition

In recent months, the London Stock Exchange has acquired UK-based clearing house LCH.Clearnet and announced the creation of a new central securities depository. Chief information officer Antoine Shagoury explains the group’s approach to growing its business.
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CIO tells of LSE's growth by acquisition

London Stock Exchange (LSE) chief information officer Antoine Shagoury did not just stumble into finance. Growing up, both of his parents worked in the sector and he often spent days at his father’s office, learning about mortgage automation, a new technology at the time. At the age of 15, he enrolled in computer programming courses. These experiences made finance seem fun, rather than just a job. There was always a spark, he says.

And today that spark remains. “I’m lucky to be in a job that is exciting all the way through,” he says. He joined the LSE as chief information officer in 2010, coming from the American Stock Exchange. At LSE, he leads what he describes as a “matrix concept”: growing the core business lines and deepening these with more services.

Key enabler

Technology is one of four vertical core businesses at LSE. “We have developed our core business under four key areas: market information, capital markets, commercial technology provision and post-trade services. I see technology as the key enabler behind all,” he says. “We have built this [business] as a horizontal portfolio and we’re also building the depth of the business.”

The aim is to become a one-stop shop for investors and issuers, with services and products that can work on an international level, but which can be tailored according to local market characteristics and requirements, he says. Services and products work on a common core technology platform across the business, using an open-access model, which means they work independently of each other but can also be integrated when needed.

Acquisitions have been a key part of the LSE’s growth. In 2009, it acquired Millennium IT, a Sri Lanka-based technology company serving capital markets. In February this year, it bought a controlling stake in GATElab, an Italy- and UK-based technology company specialising in brokerage and propriety platforms for buy-sides, sell-sides, hedge funds and exchanges. GATElab's offering includes algorithmic trading, smart-order routing for equities and bonds, risk calculation and post-trade reporting. Most recently, LSE completed the purchase of a controlling stake in London-based international clearing house LCH.Clearnet.

Such acquisitions give the LSE a core competency, says Mr Shagoury, enabling it to tailor products according to its own and clients’ needs. “Millennium IT primarily serves to develop core trading and market information systems, as well as our new index calculation engines. GATElab develops market access technology and risk calculation. On the clearing side, and with LCH specifically, there’s more investment in off-the-shelf technology,” he says.

Organic growth

Organic growth is also on LSE’s agenda. In February, it launched High Growth Segment, a new market for fast-growing technology companies with a compound annual growth rate of 20% over the past three years. It has also announced it will open a central securities depository (CSD) in Luxembourg next year. This will be an international CSD, says Mr Shagoury, that will look to capitalise on the changes in central counter party (CCP) regulation.

“We could be a CSD for CSDs, for example. There is always opportunity in chaos and the regulatory landscape is changing significantly,” he says in reference to Target2-Securities, an initiative by the European Central Bank to harmonise securities settlements in Europe. The LSE aims to grow its CSD business through the established infrastructure of Monte Titoli, its Italian CSD subsidiary.

On acquisitions in general, Mr Shagoury says the intent is to internalise and integrate as much as possible, yet also ensure continuity in the acquired businesses. The pace of change varies, depending on the business line. “Technology evolution on the trading and market information-side is rapid, whereas technology changes within our post-trade assets, such as CC&G [an Italian central counterparty] and LCH are more incremental. They centre mostly on new markets, assets and client connectivity,” he says.

“There is a framework we follow to evaluate how much we should integrate a new business. It is important that subsidiaries continue doing what they’re good at, while bringing positive effects to our wider portfolio of services, seizing advantages of being part of the wider group.” 

Integration push

With regards to LCH, Mr Shagoury says there are opportunities to integrate on a corporate level, for example, core systems, finance and human resources. Of the actual core business – the CCP – the focus is on finding efficiencies in both practical management and technical opportunities, but allowing the business to continue developing in the way it has been doing.

“We now have four CCPs and we have an opportunity to develop technical efficiencies between them. We are currently evaluating the products of the individual CCPs, their functionality and how we can enhance the services. The next stage will be to find synergies between them,” says Mr Shagoury.

While the most mature business areas are capital markets and information services, Mr Shagoury says the most emerging ones are the technology-focused portfolios, such as Millennium IT and GATElab, and the post-trade businesses such as LCH, CC&G and Monte Titoli.

The depth of the portfolio also enables the exchange to analyse implied real-time risk. Besides the development of mathematical calculations, the LSE also provides tools to member firms and partners with regulators to make sure market participants are able to meet regulatory obligations, Mr Shagoury says.

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