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How exchange operators have grown bigger and bigger

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After a year in which a handful of companies have tightened their grip on the trading infrastructure and financial data that underpin financial markets, all eyes will turn to Brussels next month.

EU competition regulators have until January 21 to decide whether to approve the London Stock Exchange’s $27bn acquisition of data and trading group Refinitiv, a blockbuster takeover first agreed in August 2019 and one that authorities opened an in-depth investigation into in June.

Since the LSE struck its deal with Refinitiv, best known for its Eikon terminals on traders’ desks, the land grab among companies for a slice of the valuable data that lubricates markets has accelerated. Last month, S&P Global, the owner of the eponymous rating agency, agreed to pay $44bn for financial analytics company IHS Markit.

Not every recent deal in the industry has been about data. Last month, Deutsche Börse, which runs the Frankfurt stock exchange, took a majority stake in Institutional Shareholder Services, which advises shareholders on how to vote on everything from mergers to executive pay. Days later, Nasdaq sealed the $2.8bn purchase of financial crime software group Verafin.

Though eye-catching, industry analysts, lawyers and academics said the dealmaking of the past 18 months only extends the sway of the largest data providers and exchange groups that has been steadily growing since the financial crisis.

The biggest players have set their sights on owning more of the building blocks on which investors rely, including data, analytics, indices, the venues on which trades are executed and the businesses that subsequently settle them.

Just over half of the $35bn in revenues the industry generated last year came from just five exchange operators — CME, Intercontinental Exchange, London Stock Exchange Group, Deutsche Börse and Nasdaq — according to Burton-Taylor Consulting International.

It is why next month’s decision by the EU, which in 2017 torpedoed a planned €29bn merger between the LSE and Deutsche Börse, will be so closely watched. A deal will create a rival to Bloomberg, the US group.

“If it goes through everything is possible,” says Johannes Petry, an academic who specialises in capital markets at Warwick University in the UK, and argues exchanges are becoming powerful market actors in their own right.

In an effort to see off EU concerns that the group will dominate trading in European sovereign debt and interest-rate derivatives, the LSE has agreed to sell Borsa Italiana to Euronext for €4.3bn.

LSE and Refinitiv, which has more than 400,000 users, are likely to take comfort from the fact that other regulators, including in the US, have waved the deal through. In its review, the Department of Justice found that rivals who purchased products and services from the LSE or Refinitiv also often sold services back to the two.

That “significant bargaining leverage” would make price increases from the combined group unlikely, the DoJ concluded, and any potential fee increases were unlikely to be passed on to customers.

Yet executives and lawyers caution that navigating the antitrust process for high-profile deals is also about politics, especially in Brussels.

“It starts off as a dry technical exercise in the beginning . . . but it is natural for a utility to be subject to political steering. Utilities, like water or energy become politicised,” said one executive who had been through the antitrust process in Brussels and likened exchanges to utilities because of investors’ reliance on them and the lack of alternatives.

“Within the EU you have much less comfort with large size [of companies]”, the executive added.

Chart showing that large exchanges have been snapping up data, financial services and trading companies

As the LSE awaits the EU ruling, Doug Peterson, S&P Global chief executive, said that he expects any regulatory issues thrown up by the purchase of IHS Markit to be resolved. According to Burton-Taylor, the combined group will be the largest index provider in the world by revenues and account for a quarter of $4.1bn the index industry generates each year.

Stephan Leithner, a member of the executive board of Deutsche Börse, also downplayed any concerns over the German group’s acquisition of ISS, which along with Glass Lewis is the dominant shareholder advisory group.

“There’s no concentration issue. We’re not active in the corporate governance market,” he said. “ISS will operate completely independently. [For investors] it’s about quality and access to the information.”

Chart showing that the big five exchange groups have grown increasingly powerful

Tyler Gellasch, executive director of Healthy Markets Association, a trade group that promotes transparency in capital markets, said that the takeover by Deutsche Börse risked eroding customers’ trust in ISS.

“How much will investors trust the advice of a company that has so many deep relationships with issuers?” said Mr Gellasch.

ISS wields considerable sway over corporate governance issues, which also have a bearing on the trading and data businesses of Deutsche Börse. The company is trying to build ESG indices, for example.

Chart showing that exchanges have been drawn to data and services that power global markets

Industry experts said the growing ambition of a handful of companies within financial data, analytics and trading mean that the decision EU regulators face on the LSE deal is unlikely to be the last one.

“There are potential conflicts of interest with them expanding their range of services along the value chain,” Mr Petry noted.



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'It’s more than sport – every day we are fighting for our rights to be equal’

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French pro basketball player and podcaster Diandra Tchatchouang on her role beyond the court



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Emily Dean on how allyship amplifies the female experience on film

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When I was six years old, I decided to be an artist. When I was 12, I decided to be a filmmaker. And instead of saying no, you can’t do that, or it’s not possible, my mum bought me a video camera.

After several years of working in the industry, I’m working with a female director for the first time. And it’s been such a gratifying experience. Women express leadership in different ways. Maybe you don’t have to be the loudest person in the room. But you can have great ideas.

And the best thing about being mentored by women and being a mentor to women is that make friends with women.

There’s something so powerful the women coming alongside other women, especially in a group setting. Because it means that you can and back each other up. You can support each other’s decisions, and you can amplify each other’s voices.

It’s about seeing yourself in your work. Seeing some part of yourself reflected is really gratifying. It’s also important that we speak up for female characters. I want to see girls and women on screen who have the whole cacophony of experience of what it’s like to be female.

I want to see their flaws. I want to feel their struggles. I want to see their joy. That is so important to making a character feel real. And it took me a little while to settle into myself and realise, if the characters I like to come up with are not your everyday run of the mill characters you see in animation, that’s fine. Because this is who I am.

When you walk into a story room, when you’re working on a film, you have to leave your ego at the door. I think that can be interpreted like keep your ego out of the work. But I’d also say for women who are maybe more shy that leaving your ego at the door means you walk in. And your job is to focus on what’s best for the story and for the film.

The story needs you. The film needs you, and it needs your best ideas. It won’t thrive unless you speak up.



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Crimea ‘water war’ opens new front in Russia-Ukraine conflict

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When a cyclone drenched Crimea in rainfall last month, rivers burst their banks and thousands of people in the Russia-annexed peninsula had to be evacuated from the floods.

The silver lining to the deluge was that the rains also filled Crimea’s depleted reservoirs, temporarily alleviating a crisis brought on by an extended drought and a Ukrainian blockade of the Soviet-built canal that previously provided up to 85 per cent of the peninsula’s water supplies.

Moscow’s struggle to supply Crimea’s 2.4m residents with fresh water has become a flashpoint in an undeclared war, seven years after Russian troops seized Crimea from Ukraine. An even longer conflict between Kyiv and Russian-backed separatists in eastern Ukraine has claimed more than 14,000 lives.

Russia has accused Ukraine of “genocide” over the building of a concrete dam across the North Crimean Canal, in addition to the existing sandbag and earth dam that was built in 2014. Kyiv fears that Moscow is plotting a military incursion to secure water flows from the nearby Dnipro river.

Coupled with surging food prices and international isolation because of western sanctions, the water shortages threaten to undermine President Vladimir Putin’s promise of a better life for Crimeans under Russian rule.

Though state-run pollsters claim Putin remains more popular in Crimea than on average across Russia, the patriotic fervour that sent his approval ratings to record levels after the 2014 annexation has long since subsided.

Map showing Ukraine and the North Crimean Canal, Crimea

“The water reserves and fields have dried up,” said Viktor, 47, a Crimean who regularly travels to Ukraine for work. “Each year it’s getting worse and worse. We didn’t have this problem before annexation,” he said, adding that most Crimeans blamed Ukraine for the crisis.

A $3.7bn bridge across the Kerch Strait linking Crimea with mainland Russia has become a conduit for trucks ferrying water for locals to take away in plastic containers. Popular Black Sea tourist resorts can turn on their taps for just a few hours a day during peak droughts, while the canal has filled with grass and weeds.

Crimea’s agricultural output has fallen owing to a lack of irrigation, making it all but impossible to grow water-intensive crops such as rice.

Construction of the canal began in 1957 after the Soviet Union transferred the arid peninsula to the Ukrainian Soviet Socialist Republic to manage rebuilding after the second world war. The waterway allowed for the cultivation of arable land and helped transform Crimea into a haven for tourists.

“The canal symbolises the stupidity of the Kremlin in occupying Crimea. They didn’t weigh the consequences at a moment of electoral euphoria that was fed by their own propaganda,” said Oleksiy Reznikov, Ukraine’s deputy prime minister in charge of reintegration policies for the occupied territories.

“Why didn’t you think about water?” he asked.

The North Crimean Canal is seen with a low level of water
The severely depleted North Crimean Canal previously provided up to 85% of the peninsula’s water supplies © Pierre Crom/Getty

Workers collect potatoes on the North Crimean Canal
Workers collect potatoes on the North Crimean Canal. Ukraine blocked the irrigation channel after Russia’s 2014 annexation of Crimea © Pierre Crom/Getty

Russia, while pressing Ukraine to reopen the waterway, has launched a Rbs50bn ($680m) programme to bolster Crimea’s supplies, repairing crumbling infrastructure, drilling wells, adding storage and desalination capacity.

Russian prosecutors last week filed a lawsuit in the European Court of Human Rights accusing Ukraine of “flagrant violations” over the issue. Crimea’s governor plans to file a separate complaint demanding up to Rbs1.5tn in compensation.

“Kyiv has essentially used Crimea’s infrastructure dependence on Ukraine, which came about in the Soviet era, as a weapon of mass destruction against all Crimeans. The water blockade is an act of state terrorism and ecocide, but the international community is failing to notice the Kyiv regime’s crimes,” Sergei Aksyonov, the peninsula’s governor, said in written comments to the Financial Times.

Reznikov said Russia, as the occupation force, was responsible under the Geneva Conventions for securing water and other basic needs for local the population. Ukraine has filed its own multi-billion-dollar claims against Russia, citing losses caused by what it describes as an illegal land grab.

With tensions rising, Russia deployed tens of thousands of troops and advanced weapons to Crimea this spring, as well as to the border of the two breakaway eastern regions where Moscow-backed separatists have battled government troops into an eighth year.

Col Kyrylo Budanov, chief of Ukraine’s army intelligence unit, said Russia was looking to seize the canal as well as adjacent territory to connect Crimea with the breakaway regions. Russian troops could advance on Nova Kakhovka, the Dnipro river town where the canal begins.

Some Crimean Tatars, an indigenous ethnic group whose members largely opposed Russia’s annexation, have set up a makeshift camp near the dams to make sure the water flow does not resume.

A Crimean Tatar activist on the North Crimean Canal
A Crimean Tatar activist enters his base on the North Crimean Canal. Tatars have set up camp to make sure the water flow does not resume © Pierre Crom/Getty

A Ukraine military vehicle drives past a Soviet monument marking the entrance to Brylivka
A Ukraine military vehicle drives past a Soviet monument marking the entrance to Brylivka, a village on the North Crimean Canal © Pierre Crom/Getty

“It will be a full-scale war,” said a 55-year-old activist who gave his name as Alibaba. He said he and his fellow activists were willing to take up arms to defend the blockaded canal. “There will be nowhere to hide in these fields. Let them try,” he added.

At the Kalanchak border crossing near the new dam, Russian and Ukrainian troops have dug trench positions a few hundred meters apart.

Tensions have also flared in the Black Sea, not just with Ukraine but also with western navies. Russia fired warning shots in the path of a British destroyer sailing through contested waters off Crimea last month. Sevastopol, Crimea’s largest city, is home to Russia’s Black Sea fleet.

Moscow has insisted it would not go to war over Crimea’s water supplies, even as it conceded that Ukraine was unlikely to restore them. “All these hysterical statements from Ukrainian politicians are completely baseless — they’re just stupid, aggressive propaganda aimed at inciting hatred between the Russian and Ukrainian people. There won’t be any ‘water war’,” Crimea governor Aksyonov said.

Reznikov, the Ukrainian minister, said Kyiv was ready to provide Crimea with humanitarian assistance, including drinking water, which it already does for the separatist-run eastern territories, but no request had been made.

“For Russia to admit they’re weak is very difficult . . . it would amount to an admission that they made the wrong decision,” he said.



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