Our word is our bond
Xavier Rolet, CEO, LSEG
“We decided to switch to open access because that way we are clearly aligned with the interests of stakeholders. There is no other major exchange or infrastructure group in the world that pursues this strategy.”
London Stock Exchange Group has evolved dramatically over the past three hundred years. But the principles that guided the business from the beginning still hold true today. Helen Power reports.
London Stock Exchange Group (LSEG) is a cutting-edge financial infrastructure company, built on foundations that stretch back for centuries.
Tracing its roots to 1698, when John Castaing began listing stock and commodity prices at Jonathan’s coffee house in the City, London Stock Exchange evolved throughout the 18th century. But in 1801, it began inviting members to join on a formal subscription basis.
This was the first regulated exchange in London, designed to service the embryonic equities market of a burgeoning British Empire. It soon acquired a reputation as a trusted expert in global markets and became a cornerstone of the world’s financial architecture.
In the intervening two centuries, the Group has dramatically extended its reach, diversifying across fixed income trading, clearing and post-trade services, information and IT.
Yet its core values - integrity, partnership with customers, innovation and excellent service - remain fundamentally unchanged from the days when its traders wore top hat and tails to work.
LSEG Chief Executive, Xavier Rolet says his overriding priority is to uphold those values as the Group continues to expand geographically and build out its service lines.
"When the global build-out started to get real traction we realised it was important to ensure that we were instilling our values as we were building a platform. Unless we also had a culture that we could offer to customers, shareholders, employees, regulators - a continued set of values - what would be the point in expanding for its own sake?" he asks.
Integrity and partnership
The first philosophical tenet - integrity - is what made the reputation of London Stock Exchange and inspired its motto, "My Word is My Bond."
"We are encapsulated by our motto, ‘Dictum Meum Pactum’. It is a fantastic motto - if I went out and hired some expensive consultants - I couldn’t come up with a better one," says Rolet.
"Integrity for us being a service provider starts with neutrality. It’s imperative that we treat all our clients the same, from governments to tiny investors to investment banks."
Hand in hand with integrity goes partnership with stakeholders, which has heavily influenced recent strategic changes at LSEG.
"Partnership, again, is not simply a culture we picked out of a marketing hat. It’s important because fundamentally we are an infrastructure company, so we are not here to help ourselves. We succeed if we are well aligned with our stakeholders," says Rolet.
At a time when financial institutions face heavy criticism for the self-serving behaviour that exacerbated the credit crisis, this philosophy is particularly apposite.
"It has never been more important to ensure that we listen to and provide a proper service for our partners and stakeholders," says Rolet.
This belief has steered LSEG to call publicly for increased competition between infrastructure providers. The focus on service was also the driving force behind LSEG’s move towards an innovative open access model, which allows customers to use only the elements of its offering they want instead of buying expensive bundled services.
"We decided to switch to open access because that way we are clearly aligned with the interests of our stakeholders. There is no other major exchange or infrastructure group in the world that pursues this strategy," says Mr Rolet.
"What we want is the equivalent of being allowed travel on a single plane ticket from Chicago to Ulan Batar, flying three or four different airlines without any penalties. We offer a range of services, but we do not bundle them - we want to be an a la carte menu from which our clients can pick and chose the services that they need and want from us."
For customers, unbundling has had significant costs benefits. But the strategy has also been good for LSEG shareholders because revenues have grown as the cost base has been re-engineered away from a few highly priced contracts and towards smaller deals with a diversified client base.
Innovation and growth
For Rolet open access remains the only practical and ethical option for exchanges.
"Whether or not open access is endorsed by regulators - and we are hoping it will be - the world is moving towards an open economy based on open and often free access - to information. In the age of the internet, the notion that an infrastructure company can build itself up as a silo, restricting access to products is not the way of the future," he says.
Open access and other LSEG innovations could feed through to a stuttering real economy.
"Innovation has always been what helps human society get out of the ditch on the odd occasion the gears of the economic system don’t seem to work anymore," argues Rolet.
"Infrastructure can give that boost. Look at the way Africa has leap-frogged the world in terms of mobile payments, enabling them to move straight to the next generation, save hundreds of years of capital intensive telecoms investment. The provision of low cost access is what makes the difference between a successful economy and an old style economy."
A new eco-system
Despite LSEG’s diversification, capital raising is and will remain a core function of the Group. In London Stock Exchange and Borsa Italiana, LSEG owns and operates a vital mechanism that could, with the help of economic policy, allow companies and investors to kick-start Europe’s struggling economy.
"Europe is a somewhat old-fashioned continent and has been struggling for the last 80 years to find its place in a dynamic new world. It has become accustomed to substituting debt for equity finance and relying on it to bridge the gap in terms of its diminishing competitiveness," says Rolet.
"Now we need to create an eco-system that is richer in options. Bank lending is a very effective way of providing finance, particularly for larger companies - but we need other choices. Here we are collaborating with others as part of a broader financial shift."
LSEG has already helped to recalibrate the financial system. In creating a retail bond market in London, the Order Book for Retail Bonds (ORB), LSEG has extended companies’ financing options by allowing them to borrow from individual small investors, rather than cash-strapped banks.
But Rolet argues fundamental action is still needed by policymakers.
"The alignment between equity investors and entrepreneurs is missing and we need to urgently remove the shackles that have been imposed on other types of financing - risk financing, equity financing. This is particularly the case with regards to the financing of starts ups, small and medium-sized enterprises, technology companies which we need to create jobs," he says.
"There are trillions of euros sitting in bank accounts with no velocity. Meanwhile, you have an army of innovative entrepreneurs, scientists and innovators who want to create businesses and they have millions of potential customers. What is wrong with that picture? Our mantra here is that the 23 million SMEs in the EU are the solution to the problem of the 26 million unemployed people in the EU."
As the founding members of London Stock Exchange would surely agree, LSEG’s old values could yet offer the solution to some very modern problems