What the London Stock Exchange really trades

0:06Pushkin. So in the UK, politicians, bankers, all kinds of people are all fretting about one thing, which is the long, slow, painful death of stock market listings in London. But when one company left London earlier this year, we asked the chief executive of the London Stock Exchange Group what he thought. And he said, and I quote, that sort of is what it is. What is up with that? Let's find out. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, and this is a very special British Unhedged podcast today because the Americans are all off eating.

0:44I'm joined by Nico Asghari, who is my desk buddy. We are growing some bonsai together. We are, yes. Put them in the fridge. But when we're not growing bonsai, we're talking about things like the London Stock Exchange Group. Welcome to the Unhedged podcast, Niku. What is going on here? Like whenever you are out and about in London now, there are these very strange advertising slogans in train stations and on top of like cabs saying, others do some of what we do, but not everything we do. So catchy. It's a really catchy catchphrase. It's the slogan for the London Stock Exchange Group. Tell me, Nuku, because I know you've been writing about this recently.

1:24What are they talking about? Yes, they have this very weird promotional campaign. And one of the videos, the start of it is, in finance, names can be a bit misleading. Take ours, for instance, which is like such terrible branding. It's just saying our name is bad. Yes, you might be confused about our name. So are we. There's a good reason for that. Yeah, they're very much banging the drum that we're not just about London and we're not just about the stock market. But like politicians in the UK really care about getting the stock market rolling again, getting lots of listings, making sure that we hold on to the companies that were already listed here.

1:58Like why? Why is this such a big deal? Is it just a kind of, you know, bragging rights thing? I mean partly, but I think part of it is to do with the culture of finance and in growing new companies and having that culture in the UK and saying, hey, we can grow new companies, we can list new companies, The founders make money. Shareholders who invest in them, whether it's a pension fund, whether it's a retail trader, they can make money. And just cultivating this environment in a way that perhaps doesn't exist at the moment because these companies are just going to New York. I mean, that's what people say about the UK, isn't it?

2:27Like there's a really vibrant market for venture capital. Like if you're a startup, then there are some sort of specialist investors out there that will back you and kind of get you up and running. But as soon as you want money in size, right, you want to list on a stock market. Like British investors are like very cautious. Yeah. They don't like taking a punt on things. It's a cultural thing. It's like what I always come back to when I'm thinking about how, you know, we are two countries divided by a common language in terms of the US and the UK. Is that in the US, when everyone got their stimulus checks in COVID, it was like, here's some money to tide you over while you can't work.

3:01Yeah. What did Americans do? They punted it on stock. What is wrong with you people? If you gave Brits a ton of cash and said, here you are, do with it what you will. Just stick it in your savings account. We would go to the pub. Yeah. Or we put it in savings. We don't put it in stocks. No, no, no. And that means that there's just less money sloshing around helping companies to grow, unless they're pubs. It's all about the ecosystem, right? And so having the stock market on side in terms of being a really important part of that ecosystem, I guess, like really matters. So to the extent to which the LSE has gone down a different route and it's looking for data as a business and it reckons that's the kind of shining beacon on the hill.

3:43Is it working or is it just losing money hand over fist? No, it's working. They're making money and they're growing. They made about four billion in the first six months of this year. And yeah, they're growing. It's not a loss making endeavor. and two-thirds of that money is coming from data compared to about 3 % from listings, which just shows the complete disparity, right? Yeah, but this hasn't cut through to the general public, right? That's why they're running this ad campaign is because people still think they're just a stock exchange. Yeah, so they're trying to sort of get away from that.

4:12I mean, the taxis have pictures of the Eiffel Tower and the Statue of Liberty and these sort of non-UK symbols to show we are also... In the ad campaign. Yeah, in the ad campaign on the taxis driving through London to show that we are doing things in other places too. There are cities other than London out there. You heard it here first. So has it lost its way or has it come up with something much better to do? Well, it kind of depends who you ask, really. The data is where it's making its money, you know, and everything from foreign exchange, stocks, bonds, it packages up this data, sells it to the banks and the asset managers who can look and trade with this data, understand what they're trading with.

4:49But if you ask, I guess, politicians, you know, people who are really at the heart of making sure that London remains a really key listing capital markets destination, not just for Europe, but across the world, they are concerned because if the London Stock Exchange isn't focusing on listings and on bringing new companies here and helping them raise money, then who is? And it's not really clear what fills that hole. Who's flying the flag? So, I mean, there's a certain extent to which we Brits are very good at beating ourselves up about things, right? There is a global dearth of IPOs, of initial public offerings, companies hitting stock markets.

5:29But is it actually worse in the UK than it is anywhere else? Well, you have to look at all the companies that are choosing to list. There are a few companies, frankly, that are choosing to list and the British ones that are choosing to list, but going to New York most of the time, a couple to Amsterdam, but they're not choosing London and they're going to New York. And you have to ask the question of why not London? Like, what is it that we're missing here that New York is offering? and why isn't the London Stock Exchange sort of waving its hands in the air and saying, hey, no, we are great. Come and list here and we'll help you.

5:57I mean, what bankers say to me is, you know, yeah, there are companies that head off to New York for listing, but it's really tough out there. You're a tiny fish in a massive pond and you put out one set of like slightly downbeat numbers and you get eaten alive by the US investment community and they never let you back in. And the grass is not necessarily greener if you go and list anywhere else. You know, nonetheless, the government here in the UK is really hot on this issue, right, about getting companies back onto the stock market and making this an exciting market to be. Because I think I'm right in saying that, like, one of the biggest companies in the FTSE 100 in our main stock index is still like British American tobacco.

6:37Yeah, yeah. Like, our stock market is all about natural resources, some energy companies. Yeah. But it's not the sort of shiny, you know, Arm, the chip maker, British company, went and listed in New York. It's not the tech companies, the high growth companies. It's still quite a traditional stock market. Old economy. And, you know, the danger is that becomes kind of irrelevant. Yeah. Over time. So I think I'm right in saying, right, London Stock Exchange Group, LSEG, it likes everyone to call it, brackets. No one actually calls it LSEG. Everyone calls it the LSE. But like they get, what, 4 % of their revenues from actually trading shares.

7:16So there's a good reason why this is not like their number one priority, right? Yeah, it's three to four percent annually that they make from money from listing from trading equities. And this sort of push into data makes about two thirds of their revenues, which is obviously far, far bigger. And that's why they're focusing on that. They bought Refinitiv, which is this big data company, much bigger than the LSE itself a few years ago for$27 billion. and that sort of helped them go deeper into data. Microsoft has a 4 % stake in LSE Group and it's all part of this sort of push into data, into AI, into making money from all of the data they have across capital markets.

7:59So what is this data, right? You know, if there is less trading going on on the London stock market and if there are fewer listings on the London stock market, where are they getting all of these magical numbers from? They don't just have numbers that exist solely on the LSE. They have access to currency data, debt, equity markets across the world. And they sort of package this up and sell it to banks and asset managers and pension funds and anyone who needs, who this would be helpful to, to understand the trades or to understand what's going on in the markets. And they sell this as a recurring subscription, which is a steady income, unlike listings, where who knows when the next IPO will be if the economy is bad.

8:35Whereas this recurring data is much steadier and much higher income for them. So are people at the LSE looking up the road at that shiny, shiny Bloomberg building just around the corner from FT Towers and thinking, we'd like a piece of that, please? I think they would never say out loud because Bloomberg is really the pinnacle of financial data companies. But they're trying in a way to compete with Bloomberg in terms of having the data, having, you know, the traders being able to chat to each other and having it all in one place and making themselves that place rather than Bloomberg. But it's a very uphill hill to climb because, yeah, Bloomberg is so big and so entrenched across Wall Street, across trading floors everywhere in a way that the LSE group is not.

9:24Yeah, they'd love a bit of that, right? So Bloomberg sell their terminals for$2 ,000 a month each terminal. So every time you see one of these terminals on a trading floor somewhere, that's money. That's decent cash, isn't it? But I mean, isn't it funny? Like, you know, the grand sort of arc of history here means that what financial services value as a commodity is not companies and shares. It is just flashing numbers on screen. Yes. It's just that data that they can make money from and understand. So you sat down with chief executive of... LSEG. LSEG. Indeed. Insist on calling it LSEG. You sat down with him recently, David Schwimmer.

10:04I mean, how passionate is he about firing up London stock market listings? I have to have to phrase this. Well, his focus is on the data side of the business and on the Microsoft deal and on the AI products that they're going to make and all of that shiny stuff. He's very defensive of London. He said, you know, a lot of the companies that choose New York over London say that they get a higher valuation in New York, which is why they go there. And he said that that was a myth and that's not true. And they've done some work on this. You know, he said that calling out London's listings market is not doing very well.

10:43It's just clickbait. And, you know, he's very defensive about his role and the company's role in this. But in terms of what they're actually doing, I don't get a sense of sort of urgency from them about how they can help UK companies or other companies list in the UK. He always points to, for example, UK government reforms around pension funds. I mean, that is fair. That is fair. And, you know, we just had the autumn statement, which is a kind of budget from the UK Chancellor. And he was talking about precisely this, about unlocking these vast pools of money that are stuck in British pension schemes.

11:19and which currently are extremely focused on bonds and saying, isn't there a way we can peel some of this money out into stock markets? Now, the government, you know, can't tell investors where to put their money. That's not how this works. So there's every possibility that if pension funds had that little bit more leeway to put money to work in the stock market, they'd put it in the US stock market like everybody else. Like, why would they bother with the UK market, which doesn't tend to perform that well? But the government's serious about this. It really sees equity finance as a way to kickstart and maintain growth, right?

11:53Yeah, yeah, absolutely. And Schwimmer is all behind that, you know, completely pro these changes and hopes again that that money will go into UK listings, which it might not, like you say, but it's sort of one of the main avenues to try and boost the UK. So, you know, I guess where this all leaves us is, should we be, you know, or should the government be relying on the London Stock Exchange Group to really back the London Stock Exchange? You know, is this really the right organisation to try and pick this up? It's a hard position for them to be in because they have the branding and the more than 300 years of history.

12:28And you think of the London Stock Exchange Group, and you think of just the exchange and the listings, but their focus is just really not on that anymore. It makes such little money for them. And their eyes are over there looking at the shiny sort of data money. I think for the government, they still think of the LSE as that core listings venue. And it's pretty hard to sort of detach the two, right? There are other venues in the UK, but they're much smaller and they attract much smaller companies. So whether they can sort of find somewhere to fill that gap or take the place of the LSE, it's very, very difficult.

13:02Yeah. And look, we'll see the results of this next year because what every investor says is next year should be easier in markets. We kind of understand where we are on interest rates and inflation a lot better than we did this time next year. And, you know, bankers that work on sort of getting companies actually listed on stock markets always say, well, there's a great pipeline, magical pipeline that always exists. There's a pipeline of companies just queuing up to list on the markets and you'll see they'll come through and they've been wrong all year, but maybe they'll be right next year. But, you know, the extent to which I guess we'll have the LSE or the LSE group to thank for that if and when it actually happens is up for debate.

13:40Do you reckon they'll pull it off? What's your guess this time next year? Do you think there'll be a bonanza of loads of companies? I don't know about a bonanza. It's a magical pipeline that all the bankers talk about. I don't know if that exists. I mean, I'm sure there will be some companies listing on the LSE group, but, you know, how big they'll be, whether they'll do well, who knows? Do you think we've lost the race to really compete with the US for a kind of snazzy exciting stock market? I think so I think the founders just look at the US look at the valuations they get the more investors there and think hey like that's just so much shinier and so much better for us.

14:12Everything's bigger in a moment. Okay we're gonna have to leave it there but we will be back in a moment with Longshorts.

14:28right now it's time for long short that part of the show where we go long a thing we love short a thing we hate it can be anything nick who do not fear this task are you long or short this week and what of i'm so excited i am short bnb coin ah finances token of choice um because finances ceo cz agreed to step down this week and agreed to pay about four billion dollars in fines to the US. $4 billion? Yes. Gadzooks. And it's just chaos over there at Binance HQ, if they had one. Yeah, I mean, the complaints against Binance or the documents that have come out from the US Treasury and the Department of Justice, they're really worth reading because they say that this crypto exchange has been facilitating trades that appear to be linked to money laundering by the likes of...

15:18Stunning. Hamas, Al-Qaeda, ISIS. There are trades relating to Iran, North Korea, Occupy Crimea. There are flows of money that appear to be linked to child abusers, to cyber criminals. They're really throwing the kitchen sinker. Strong roster of clientele. Yeah, yeah. And the fine itself is like one of the largest financial settlements in history. I think the US are pretty pleased with themselves. So you are short BNB coin, which is Binance's own special little token. Yes, I think this feels like a reasonable bet. Okay, I'll be long gilts. I'll be long UK government bonds because, do you remember, roughly this time last year, there was a sort of autumn time mini budget from the UK government and it just like was like a stick of dynamite under the bond market and everything went wrong very, very quickly.

16:10We've just had an autumn statement from the new chancellor and nothing. Calm. Beautiful. Calm. So thank you for not torching the UK government bond market like the last lot. This is a much, much calmer environment. Financial journalists everywhere. Thank you for your service. Yes, indeed. So, Niku, thanks for joining us for your first ever Unhedged podcast. It wasn't too painful, was it? No, I really enjoyed it. Thank you. And now we can get back to our bonsai seeds, which are in the fridge. But for a good reason, right? Yes, to help them grow and clearly labelled do not bin. So do not bin, do not eat.

16:49If you're listening to this in the FT newsroom, do not eat the bonsai seedlings. Unhedged is produced by Jake Harper and edited by Brian Erstad. Our executive producer is Jacob Goldstein. We had additional help from Topa Forehead. Cheryl Brumley is the FT's global head of audio. Special thanks to Laura Clark, Alistair Mackey, Jacob Weisberg and Jess Trulia. FT Premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Katie Martin. Thanks for listening.

17:41Thank you.