Why the London Stock Exchange’s French boss is taking on the world

L ONDON’s financial services community has a new champion: Xavier Rolet, the 50-year old French banker who took over as the London Stock Exchange’s CEO last year.

 Unlike many British commentators, who seem desperate to talk down one the UK’s most important industries, Rolet realises how important a prosperous City is to the UK and Europe’s future. Talking to him is therefore always a refreshing experience; his enthusiasm and ambition are in stark contrast to the downbeat, defeatist tone that has infected parts of the City of late.

Rolet is disarmingly relaxed for a man who is working flat out to get a 312-year old exchange moving at digital speed. He is sitting in white shirtsleeves at a table in his small office on the second floor of the LSE’s Paternoster Square headquarters, just next to St Paul’s. He is adamant that the LSE must cut costs, improve its IT systems and diversify to other products and locations if the business is to maintain its role as one of the world’s top exchanges.

The animated son of army parents – who both served in Algeria – he was brought up in Sarcelles, a poor suburb of Paris before working his way to the top. “London is the number one capital raising market in the world,” he says in a part Mid-Atlantic, part French accent, understandable when you consider Rolet studied for his MBA at Columbia University and then worked for Goldman Sachs in New York for almost ten years.

He continues: “Our expertise is much broader and deeper than the rest of Europe. We in London have a long history managing all kinds of financial risk for large corporate and institutional clients.”

Rolet adds: “Europe has not developed wholesale financial risk intermediation in the way that London has. Large parts of Europe are more interested in the retail market.” He continues: “London should be Europe’s champion in the large corporate and institutional market. The competitiveness of the City must be at the heart of regulations that are made by the EU.”

Rolet took the helm of the FTSE 100 firm, valued at £1.7bn, last May, taking over from Dame Clara Furse, whose eight-year tenure was marked by a protracted battle to keep the exchange out of the hands of predators.

The bidding war began in December 2004 with an approach from larger rivals Deutsche Börse, the LSE batted away interest from Euronext, Australia’s Macquarie, Nasdaq, the New York Stock Exchange and Michael Spencer’s interdealer brokerage Icap before Qatar and Borse Dubai took the price out of reach by buying their stakes in 2008. During this period Dame Clara added muscle to the LSE by buying Borsa Italiana in 2007.

The current suspension of hostilities between the world’s exchanges has given Rolet space to plot a five-year growth plan for the business. Last year he cut around 11 per cent, or 130 jobs, from every area of the business; Rolet wanted a leaner LSE for the other changes he felt the exchange needed. He also cut the fees the exchange charged to the big banks, as this had long been a point of tension between it and its biggest customers. It had even led to many of the LSE’s top banking customers funding or backing new rival trading platforms, such as Turquoise, BATS Europe or Chi-X. Five years ago the LSE handled more than 95 per cent of UK equities trading; now that figure stands at 60 per cent.

Rolet has begun the fightback. But a key cost he cannot contain is the fees charged by clearing house Euroclear, which settles the trades made it’s the exchange.

Rolet says: “For large institutional traders settlement costs add up to 50 to 60 per cent to their trading fees. This is far too high, we have to resolve this issue or die.”

The LSE boss says he is “working hard to secure an agreement” with the clearing house over cutting its fees, but the parties remain some way apart over price. Rolet says: “We are working on plan A, but we have a plan B as well. And that is to bypass them. We have to reach some sort of agreement soon, or we will have to move on.”

Reports last month said that the LSE is looking hard at buying smaller rival Dutch clearing house EMCF, and using that to handle some of its settlements. On this Rolet only says: “We do not comment on M&A plans.”

Rolet has also made a number of key investments in his nine months in charge. The LSE bought Sri Lankan technology firm Millennium IT for £18m last September to upgrade its previously antiquated trading platform. Rolet says: “In the past we had outsourced our IT. This deal brings it in-house. Our IT had a reputation for being less sophisticated than our competitors. Our new system, which we will roll out in the third quarter of this year, will be a step change for us.”

And two months later Rolet bought rival exchange Turquoise – which was owned by nine investment banks including, UBS, Deutsche Bank, and Goldman Sachs – for an undisclosed fee. The deal was important for the exchange for a number of reasons, even though Turquoise had never turned a profit since it was launched in August 2008.

It allows the LSE to take Turquoise’s “dark pool” – where trades are carried out away from the public order book and prices released post-trade – and merge it with the LSE’s own version, called Baikal.

The deal gives the LSE a pan-European base for the first time; Turquoise has a pan-European equities market share of around four per cent.

And just as importantly it signalled an end to a rift over fees with its biggest clients – the investment banks.

Rolet says: “This deal could not have happened if it were not for good relationships with the banks.”

The LSE chief’s medicine seems to be slowly taking effect. Last month the group’s third quarter sales were down nine per cent at £155m on a year ago, when post-Lehman chaos produced extraordinary trading volumes, but this was ahead of market expectations.

This figure is also four per cent up on the second quarter, and industry watchers are generally positive on the changes Rolet is making.

Rolet is keen to add other types of traded products to its portfolio, as he has seen the LSE’s equities base whittled away. The exchange began to trade corporate and government bonds to retail investors this month. The LSE boss said the exchange will continually look to expand into new areas like derivatives “as part of an ongoing process.”

Rolet wants a fitter LSE because he thinks the current peace between rival exchanges won’t last. He believes that in the next ten years there will be four to six groups controlling the world’s biggest, most international exchanges (though there wil also be smaller, local players). “We hope the LSE will be one of them,” he adds.

Other groups he expects to be part of this landscape include NYSE Euronext, Deutsche Börse, groups in Hong Kong, China, and perhaps outfits in Singapore and Latin America.
Rolet says it is vital that British and European regulators do nothing to hamstring the City and its institutions. He is clearly worried about many of the decisions and tax hikes that have been pushed through over the past couple of years. However, there is some hope: “We talk to Brussels all the time and we have a growing sense that they are listening.”
But in the meantime – through expansion, investment in new technology, and an obvious desire to become predator rather than prey – Rolet is intent on helping himself.


Age: 50

Work: Goldman Sachs, Credit Suisse First Boston, Dresdner Kleinwort Benson, Bayerische Vereinsbank, Lehman Brothers

Education: School – Lycée Sarcelles in Paris and after that Ecole Superieure de Commerce in Paris and an MBA at Columbia University

Family: Married to his second wife, three children

Lives: Pimlico, London

Hobbies: Has competed in the Paris to Dakar Rally three times, skiing, scuba-diving, fly fishing, beekeeping, and runs a vineyard in France