- London Stock Exchange Group's shares have been hit due to concerns that it will lose clearing business because of Brexit
- This may not be as bad as feared because it would be a huge and risky upheaval to move clearing and foreign exchange away from London
“London Stock Exchange Group is a business that we have followed for many years and long admired due to its high-quality data [business] FTSE Russell, clearing via London Clearing House (LCH) and capital market assets. We know London Stock Exchange [well because] a member of our investment team was one of its last members back when deals were placed on the trading floor in person and much more fun.
“London Stock Exchange shares have fallen by a third since February on worries that its Refinitiv acquisition might prove a step too far and clearing volumes will leave London post-Brexit. Both of these factors are a risk, but the market is pricing in a worst-case scenario for each of these and there is ample margin of safety with its shares below £70 [at time of writing]. Specifically relating to clearing volumes moving to Europe, we feel that the media has overplayed this risk, and it would be a huge and risky upheaval to move the clearing of derivatives and foreign exchange away from London.
“The large US banks do the majority of the volumes through LCH and are not motivated to change a clearing system that has functioned well for decades. Dealing in shares and swaps moved from London to Europe on the 31 December 2020, but this is not the heart of London Stock Exchange’s clearing business, and the market and media have jumped to incorrect conclusions. LCH remains the central counterparty in the great majority of this derivatives/foreign exchange business, and it would be arduous and very expensive to replace it.
“We have been steadily adding to London Stock Exchange over recent weeks and believe that the business will surprise the naysayers.”