Will the LSE remain the natural home for European companies wishing to list outside of their domestic exchange?

The consolidation pressures on Europe’s smaller stock exchanges, highlighted last month by the Swedish and Finnish exchanges’ mooted merger plan, may also shed light on the future prospects of the region’s largest players. Some fear that complacency at the London Stock Exchange (LSE) – namely the lack of a European strategy – could threaten its dominant position.

According to a report commissioned by the Corporation of London, The Future of Stock Exchanges in European Union Accession Countries, at present, the LSE remains the natural home for European companies wishing to list outside of their domestic exchange as London is still the biggest pool of liquidity in Europe. However, if its rivals for the European crown – Euronext and Deutsche Börse – continue to court European exchange business, it may not remain this way forever.

The danger is that the LSE has been lulled into a fall sense of security by its historic success. While it has inked deals with exchanges in Johannesburg and Hong Kong, for example, it has demonstrated no strategic vision in Europe since the iX debacle (the failed merger with Deutsche Börse). Pundits say that because it is already getting the revenue from foreign listings and its International Order Book, on which foreign companies are traded is seeing healthy growth, the exchange has little incentive to seek partnerships with smaller players.

Euronext and Deutsche Börse on the other hand, have obvious plans to extend their business with other European exchanges. Euronext has already struck a deal with the Warsaw Stock Exchange for cross-membership, and Deutsche Börse wasted no time offering Hungarian investors access to its market via a deal with the Budapest Stock Exchange.

Euronext has grown beyond its original tri-partite structure to embrace the Lisbon market and it has had discussions with several other exchanges, although the details of what offer was on the table are unclear. If Euronext continues to mop up the smaller stock exchanges and combine their liquidity into a single pool, how long will it be before it begins to challenge London’s major selling point?

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