The London Stock Exchange Group has reported growing demand from investors around the world to use its clearing house, in spite of the unit’s uncertain future following the UK’s decision to leave the EU.
The UK exchange also told shareholders at its annual meeting on Wednesday there had been a rebound in the amount of activity on its main London market this year, with more companies prepared to list in the first quarter.
In a trading update, the LSE’s chief executive Xavier Rolet said demand remained “very strong” for its key clearing and data businesses in the first quarter as it moved on from the collapse of its planned merger with Deutsche Börse.
In the period to March 31, it reported a rise in total income, on a constant currency basis, of 9 per cent to £458.7m, ahead of analysts’ expectations. The outperformance was “good quality”, said Danny Garrod, an analyst at Barclays. Earnings were boosted by the decline in the value of the pound against the dollar and the euro.
In spite of the uncertainty created by Brexit, the LSE said there had been little slowdown in business at LCH, its majority-owned clearing house. Its London operation is Europe’s principal clearer of euro-denominated interest rate swaps and continental politicians have called for the business to be relocated to within the EU after the UK’s departure.
But rising US interest rates and hedges against rising inflation expectations have generated more swaps business on global markets, and regulatory mandates have pushed more business through clearing.
“The strong growth at LCH shows the importance of clearing to the global financial community. Central clearing is supported by regulators because it significantly reduces counterparty risk,” said Peter Lenardos, an analyst at RBC Capital Markets.
The LSE said total income at LCH rose 21 per cent to £132m, on a constant currency basis. The notional value of interest rate swaps it cleared rose 45 per cent to $245tn, while the total notional value of foreign exchange swaps LCH processed soared 733 per cent to $2.4tn on tougher trading rules.
Capital markets activities recorded the slowest growth, with revenues only up 1 per cent year-on-year. There had been 22 companies floating in the first three months, seven more than in the same period a year ago when the UK was preparing to vote on its future in the EU.
The amount of further money raised by companies from investors increased 76 per cent to £3.7bn although the amount of new money raised was flat at £1.4bn.
However activity on its junior Aim market was more muted, with the number of companies brought to market in the period down from 15 to 10. Total money raised on the group’s equity venues rose 159 per cent to £16.3bn, boosted by activity on Borsa Italiana. Mr Rolet also confirmed the LSE was “actively engaged” in looking at deals and investments to drive further growth.