LSE Chief to Step Down Next Year -- WSJ

By Ben Dummett Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 20, 2017).

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London Stock Exchange Group PLC on Thursday said Chief Executive Xavier Rolet would leave the company by the end of next year, bringing down the curtain on a tenure marked by a big bet on index services and a failed attempt to create a pan-European exchange.

The LSE said it would start looking for a new chief executive and work closely with Mr. Rolet -- who was appointed in May 2009 -- to ensure a smooth handover.

Despite the lengthy transition, the LSE's new CEO will likely take the helm amid Britain's messy divorce from the rest of Europe and the uncertain economic and political climate that is creating. At the same time, the company's lucrative business clearing trades in derivatives and other securities faces new competition. Earlier this month, German clearinghouse Eurex, which is owned by Deutsche Börse AG, announced plans to set up a profit-sharing system with customers to try to win market share from the LSE's majority-owned LCH Group Ltd.

Still, Mr. Rolet is leaving the LSE in a position of strength, as one of the world's biggest providers of licensing indexes for institutional investors and developers of exchange-traded funds. This follows the 57-year-old's $2.7 billion acquisition of index-services provider Frank Russell Co. in 2014. The deal represented a successful bet on low-cost funds that mimic benchmarks from higher cost mutual funds.

Vanguard Group, a leading provider of index funds, attracted nearly $300 billion into its funds for the first nine months of this year, almost matching flows into the firm for all of 2016 and underscoring the demand for index products on which these types of funds are built.

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The LSE's latest results highlight the benefits of Mr. Rolet's aggressive move into index services. The exchange operator Thursday reported an 18% jump in third-quarter revenue from the same period a year ago to GBP442.7 million ($584.5 million), led by gains in its information-services division, which includes indexes, as well as by a strong performance from its clearing operations. The company said total income for the third quarter rose 17% to GBP486.1 million.

Under Mr. Rolet's leadership the market capitalization of the LSE has risen from about GBP800 million to almost GBP14 billion, the company said in a statement.

Still, Mr. Rolet's more ambitious plans to create a pan-European exchange, and before that a trans-Atlantic exchange operator, ultimately failed amid regulatory and political pressures.

After agreeing to a near $30 billion tie-up with Germany's Deutsche Börse, European regulators blocked the proposed deal in March after more than a yearlong effort to complete the transaction.

The exchanges hoped the combination would create a more formidable competitor against U.S. rivals such as CME Group Inc. and Intercontinental Exchange Inc., while bringing greater financial stability to Europe's capital markets and offering companies and other market participants a deeper pool of funding.

But the EU worried the deal risked giving the combined entity too much influence over the clearing of fixed-income trading after the LSE refused to comply with certain conditions, including the sale of the LSE's Italian credit-trading platform.

In 2011, the LSE tried to create a trans-Atlantic exchange operator through a merger with Canada's main stock market operator but that succumbed to a rival homegrown bid that had the backing of some of Canada's biggest executives and politicians.

--Maryam Cockar contributed to this article.

Write to Ben Dummett at ben.dummett@wsj.com

(END) Dow Jones Newswires

October 20, 2017 02:47 ET (06:47 GMT)