The London Stock Exchange has confirmed that it has agreed terms of a £1.1bn takeover of the Borsa Italiana exchange to create a combined group built on high-speed electronic trading.
The London exchange, which has just gone live with its new TradElect electronic trading platform, said the combined group would have the "most advanced trading platform of any exchange". TradElect is the culmination of a four-year IT overhaul.
A battle for control of the prized MTS European electronic bond trading platform appeared to be behind rival bids for the Milan-based Borsa from the LSE and – according to press reports – European exchange NYSE Euronext. But the London exchange has trumped its rival with the £1.1bn deal.
The Borsa has already exercised its call option rights to purchase all Euronext shares in MBE Holding, the joint venture company that owns 60.73% of MTS. The holding company is 51% owned by Euronext, with the Borsa owning the remaining 49%.
Control over MTS - a regulated European electronic exchange for government bonds and other types of fixed income securities – will extend the LSE’s influence and trading reach. The merger would create Europe's leading market for electronic trading of exchange-traded funds (ETFs) and securitised derivatives, and its premier fixed income market, "through its interest in MTS", the LSE said.
High-speed electronic trading is now crucial to the success of the exchange, as its annual results posted last month revealed. The LSE saw revenues leap 20% while operating profits shot up 55%, with particularly strong growth in trading on the exchange’s electronic order book, SETS, that pushed revenue in the broker services division up 31%.
Last week, the investment banks that hold minority shares in the MTS platform and are its largest users voiced opposition to the Borsa’s attempts to seize hold of the trading platform. The banks expressed alarm, saying they have little confidence in the way the bond platform would be run under the Italian exchange, the Financial Times reported.
They are understood to be particularly concerned about the Borsa’s control of the post-trading clearing and settlement infrastructure and the implications for the cost of bonds trading. It remains to be seen whether the LSE's takeover of the Borsa would allay these concerns.
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