The buying and selling of shares is now a relatively minor part of daily operations at the London Stock Exchange
The buying and selling of shares is now a relatively minor part of daily operations at the London Stock Exchange © FT Montage/Bloomberg

Shareholders in London Stock Exchange Group value data so highly that they granted the company’s boss a near tripling of his total pay — to £6.9m — last year. They had reason to: David Schwimmer’s takeover of financial information provider Refinitiv for $27bn led to a surge in the LSE share price. 

This deal, enthusiastically supported by shareholders, should allow the LSE to cash in on demand for computer-driven trading, insulate itself from takeover bids and put it in competition with Bloomberg, the US powerhouse.

Facilitating the buying and selling of shares — the LSE’s main business for 300 years — is now a relatively minor part of its daily operations. These days, it mostly supplies information to the world: financial, economic, reference, and legal entity data; as well as market benchmarks; and “alternative data” — which comes from satellite images, social media or shipping trackers.

By doing all of this, the LSE is now directly exposed to a $33bn market that grew nearly 6 per cent amid the pandemic in 2020, according to Burton-Taylor International, the capital markets consultancy.

But unbridled optimism was unceremoniously punctured in early March this year, when LSE shares had their biggest one-day fall in 20 years. That was when the exchange disclosed a higher than expected £1bn budget to integrate Refinitiv in the first year after its acquisition. The share price drop underlined the fact that success is not assured.

“It’s not easy to get it right,” says Goran Skoko, global head of wealth solutions at FactSet Research Systems. “You have to produce high-quality content. If data is the new oil, it’s useless unless it’s refined.”

The LSE’s stumble reflected problems in the business of supplying “terminals”: the distinctive screens that bring together charts, analysis and news, which are mainly sold to traders and investment banks.

“On our estimates, the largest players in the space, Bloomberg, S&P and FactSet, saw just zero to 3 per cent revenue growth in 2020,” warned Arnaud Giblat, an analyst at Exane BNP Paribas in a research note last month. “Thus, even if LSEG can turn around this business, we’d still expect low single-digit growth at best.”

The Refinitiv deal led to a near tripling of LSEG chief David Schwimmer’s pay
The Refinitiv deal led to a near tripling of LSEG chief David Schwimmer’s pay © Simon Dawson/Bloomberg

Even so, this has not deterred exchanges from looking at potential deals for data providers — particularly as trading slows after a hectic 2020. Data remains highly valued, even though banks and market makers, as well as regulators, are sensitive to any price rises for information about trades done on stock markets.

“It is hard to think of a more contentious issue right now in financial markets than the prices exchanges are charging for their trading data,” says John Eley, chief executive of GoldenSource, a data management software provider. “Today’s situation is a far cry from the story 15 years ago, when market data was relatively cheap.”

Most of the growth in the past 18 months has come from data on commodities, private markets, wealth management and risk, as companies worry that working from home and online activity will lead to cyber crime and fraud. The LSE-Refinitiv business that supplies reference and legal entity data grew 3 per cent in the first quarter of this year, even as its trading and banking business fell behind.

Consequently, it is these areas that the big exchanges are eyeing. Nasdaq this year finalised the $2.8bn purchase of Verafin, a financial crime software group. Meanwhile, Deutsche Börse indicated that it would look to do deals in indices and analytics, as well as information related to environmental, social and governance (ESG) investing.

Acquisition gossip has been further stoked by S&P Global’s planned $44bn purchase of IHS Markit — an industry megamerger and one of the largest transactions announced last year. In recent months, investors have speculated that FactSet could also be a target. 

But whether another exchange would follow the LSE in buying a data provider is another matter.

For a start, many of the world’s largest exchanges are digesting their own deals, having also been on M&A sprees in the past year. The LSE, Intercontinental Exchange, Euronext, Nasdaq and Deutsche Börse all made big purchases.

Moreover, Eley points out that financial data is regarded as a premium staple product — purchased regularly and out of necessity — not a commodity. Exchanges can only justify providing and charging a high price for it if users find it valuable. “How valuable data is, is very much dependent not just on what is charged to users but their associated cost of processing it,” he says.

Also, the technology challenge may be getting harder. A February survey by Burton-Taylor International noted that the pandemic had made the financial industry more creative in how it used data. More emphasis is being placed on integrating information such as alternative data, while spending less on terminals in favour of virtual desktops that can be used on mobile devices. 

That may awaken interest from the world’s biggest technology companies rather than exchange operators. “Non-traditional players [ie Big Tech] are expected to enter the business aggressively,” the report argued. 

For the financial markets data industry, these rivals could be the biggest challenge of all.

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