Byline: ANTHONY HILTON
IT WAS amusing that on the very day the London Stock Exchange published its defence to the offer document from Australian bank Macquarie, the conversation in the coffee break at a City seminar was all about whether it was time to go short of LSE shares.
It highlights a paradox. By almost universal consent the Macquarie bid is too low. The Exchange is booming, its volumes and profitability are soaring and its shares are comfortably ahead of the bid price. Because the offer is relatively low and the bidder has a private-equity rather than a market pedigree, the management of the LSE has thus far successfully sought to classify the bid as noise, and not to be taken seriously.
So the Australians have a lot of ground to make up.
But on the other hand delegates at the seminar - it was one of the admirable series organised by City Compass, catering for the needs of financial services infrastructure providers - had considerable scepticism about the LSE business model going forward, and whether its current high profitability can be maintained.
Their thesis was that a significant proportion - some say up to 40% - of the LSE's monies come from the provision and selling of information. However, that entire universe is about to change out of recognition with the implementation of the European Union's Mifid directive, which deals with the way shares are bought and sold across Europe, the information investors should have access to and the guarantees of best execution.
This means a completely new approach to information gathering and dissemination will need to be adopted if firms are to be Mifid-compliant.
Rightly or wrongly, the impression is abroad that the LSE is not equipped to provide-this new information and seems unlikely to become so. Hence a major chunk of revenue may disappear.
The Exchange argues otherwise, and says, with justification, it is likely to be less adversely affected by Mifid than most of its Continental competitors.
That is true.
But the problem is that the changes in structure, regulation, reporting and working practices demanded by Mifid are so far-reaching that, as Bob Fuller of investment bank Dresdner Kleinwort Wasserstein said yesterday, no one can be sure what the new world will look like, nor how firms need to reorganise themselves to prosper.
The point of Mifid is to encourage the European public to buy equities to provide capital for, and take a stake in, Europe's future prosperity. But its perspective and that of the politicians driving it is of a Europe-wide single securities market - not a national exchange. …