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February 23, 2016updated 21 Oct 2016 5:35pm

London Stock Exchange and Deutsche Borse – a fintech merger at scale

Analysis: How much technology does it take to run a stock exchange, or two

By Sam

Today’s London Stock Exchange proposed merger with German financial market operator Deutsche Borse will be one of the largest fintech mergers to happen in Europe.

This is true not because of the value of the merger, stock market operators are smaller scale financial services businesses. In 2014 LSE generated £1.4bn in revenue with an operating profit of £346m.

But at the capital handling level they are huge technology users. (see below)

Exchanges operate on liquidity and liquidity is provided by participants who are attracted by modern technology platforms which give connectivity and market access.

Both organisations operate an ecosystem of data centres from which they operate various markets for equities, commodities, FX, futures and other financial instruments.

As well as providing the stock exchange market, LSE operates a hosted exchange. This offers proximity hosting to its members through which they can locate their servers in the same data centre as its market matching engine. It can therefore be physically closer to its matching engine. This can give traders lower latency for trade completion and is often popular with participants in algo trading.

Hosted exchange operates from a fully owned and operated City of London data centre providing access to London Stock Exchange, Turquoise and Oslo Børs trading venue. A data centre in Milan provides access to Borsa Italiana’s MTA, ETF Plus, MOT, SEDEX, IDEM derivatives and Euro TLX.

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Over in Germany Deutsche Borse signed a deal back in 2010 with Equinix which it described as strategic. From 2011 on the data centrer was the new main data centre for Deutsche Börse Group in Frankfurt, where electronic trading platforms were deployed and acting as the central colocation site for customers of Eurex, the international derivatives exchange, and Xetra, the cash market within Deutsche Börse Group.

Equinix was already a provider of data centre infrastructure to Deutsche Börse Group in Frankfurt, Chicago, New York and Paris.
Both LSE and Deutsche Borse are investors in fintech companies.

Deutsche Börse and information services firm Markit announced an investment round in the IFM Fintech Opportunities Fund.

"The new fund focuses on fintech companies in areas such as compliance, regulation and connectivity, among others, which fits into Deutsche Börse’s growth strategy to extend its service portfolio," said Andreas Preuss, deputy CEO of Deutsche Börse.

Elsewhere Digital Asset Holdings, a blockchain startup raised $50m including investment from Deutsche Börse.

Financials

Full year 2014

Another period of growth: Q3 total income from continuing operations up 11% and rose 8% year-to-date; headline Q3 total income1 up 85% to £589.3 million and 9 months year-to-date up 83%, to £1,798.1 million;
Q3 revenues from continuing operations (excluding assets held for sale) up 12% to £326.4 million; up 10% for 9 months year-to-date at £897.4 million

The LSE cash equities trading business Turquoise European cash equities MTF average daily value traded in 2014, increased 42 per cent to €3.7 billion per day. Also in 2014 its capital market activities generated £333m, for clearing and settlement £129m and post trade settlement £389m. For LSE its technology division is Millennium IT and along with its generated £66m in revenue in 2014 contributing around 5% of income to the exchange.

Q3 2015 to Sept 30th

Another period of growth: Q3 total income from continuing operations up 11% and rose 8% year-to-date; headline Q3 total income1 up 85% to £589.3 million and 9 months year-to-date up 83%, to £1,798.1 million;
Q3 revenues from continuing operations (excluding assets held for sale) up 12% to £326.4 million; up 10% for 9 months year-to-date at £897.4 million

 

 

 

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