There has been a lot of commentary on the proposed acquisition of Refinitiv by the London Stock Exchange Group (LSEG) but much of it seems to have missed the real point - what other choice does the LSEG really have?
Its stated aim is to create and invest in businesses that can scale globally but the traditional stock exchange model is nothing like it used to be. The market for equity research, which investors rely on to make informed decisions, has been decimated by MiFID II. Exchange listings have also steadily declined as private equity and crowd sourcing wrestle with traditional exchanges to provide access to capital.
Secondary trading has also fragmented across a host of smaller venues and so rendered the construct of a “National” stock exchange almost meaningless. And, finally, the ability to create scale by buying other exchanges is constantly thwarted by the nationalistic hubris of regulators.
The net effect is that nearly all traditional exchange activities have come under severe pressure. Providing data is the major exception, however, as our ability to consume data appears almost limitless. Not only to drive investment decisions, but power entire customer journeys too (just as we experience in our daily retail lives). Refinitiv has the potential to add significant scale and diversity to the LSE's dataset - both of which are pre-requisites for effective AI and machine learning.
The other key advantage Refinitiv provides is that it gets The LSEG one step closer to its customers. Now isn't the time to debate whether Eikon is a better or worse terminal than Bloomberg but, either way, there are plenty of them deployed around the world. Trading margins continue to compress while the regulatory overhead is going up too. So, making the path between investors and liquidity shorter is another obvious way of creating competitive advantage.
Harvesting and monetising data is fast becoming the primary business goal of large technology firms. That is exactly what the LSEG, and its competitors, have become.
This post first appeared on LinkedIn in July 2019 and attracted over 2,000 views