FMX | Connect – www.fmxconnect.com - (Reported 5/19/2010)
LSE cash trading business remains under pressure:
· UK order book ADV was flat Y/Y so far calendar year 2010, with consolidated velocity at lowest levels since 2007.
· Weak economic growth prospects in Europe as a result of the fiscal crisis will keep velocity depressed. This was the case in the UK after the internet bubble in 2001 and after the banking crisis of 2008.
· Italian order book ADV recovered 33% YTD from Jan-Apr 2009 but still remains 50% below pre-crisis levels.
· MTFs exceeded 40% of FTSE 100 stocks during the last months and continued expanding. The Italian market remains better protected, with MTFs accounting for 15% of the FTSE MIB Index.
· As a response to competition, LSE cut trading fees to a blended 0.70 bps beginning May 4th, but further reduction in prices is needed to match Chi-X’s 0.10 bps rate.
· LSE cash trading and post-trade business accounts for 32% of revenues and is the group’s largest revenue segment.
Unlike other global exchanges, the lack of a growth story and the absence of catalysts from the regulatory side will keep LSE stock down:
· Competitive threats would not likely ease much with the broad review of MiFID in Europe. The EU Commission will most likely focus on internalization of order flow at banks and leave displayed MTFs without major changes.
· Restrictive measures on hedge funds to be approved by the European parliament could affect the growth of electronic trading
· LSE has no clear plans on OTC derivatives trading and clearing.
LSE is trading at 11.3x fiscal 2012 earnings, a 31% premium over the FTSE 100 index and above NDAQ (8.9x), NYX (11.2x) and BME (10.9x).
Source: ERDESK
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