LSE Expands to the East

Terry Flanagan

London Stock Exchange Group is partnering with Borsa İstanbul in a further expansion of its international profile after acquiring Frank Russell last year to boost its US revenues.

The UK exchange operator said in a statement that it has signed a partnership with Borsa İstanbul for derivatives and index products.

Nicolas Bertrand, head of equity and derivatives markets at LSE Group, told Markets Media that Turkey has been an attractive investment theme for clients.

Bertrand said: “Turkey is a very important emerging market from a demographic perspective and for the liquidity in its market. We know from our client interactions that there is demand for investment.”

London Stock Exchange Group has a derivatives business in Italy through Borsa Italiana and in the UK through the London Stock Exchange Derivatives Market.

LSE offers derivatives on UK and Russian equities and Norwegian stocks in conjunction with Oslo Børs. The deal with Norway allows London Stock Exchange clients to use their membership to trade directly on the Oslo exchange. Under the Turkish agreement products will be dual-listed in London and cleared through LCH.Clearnet, the exchange’s clearing business, under European Union regulations.

Nicolas Bertrand, LSE

Nicolas Bertrand, LSE

Trading in futures and options on the benchmark BIST 30 index and on leading Turkish stocks is due to begin in the second half of this year, subject to regulatory approval. BIST 30 index futures currently trade, on average, more than 170,000 contracts per day on Borsa İstanbul according to a statement.

By the end of this year FTSE, LSE’s part-owned index business, and Borsa İstanbul aim to launch a partnership involving all indices referencing Turkish securities.

Bertrand said the two exchanges are currently discussing the potential derivative contract specifications with clients. “London has successfully developed its options segment while options trading in Turkey is very small,” Bertrand added. “Our Turkish products could be very relevant for the market.”

Last month the LSE completed its $2.7bn acquisition of Frank Russell, a provider of index and exchange-traded fund products.

Analysts at Barclays Capital estimated that, based on March 2014 figures, the proportion of London Stock Exchange Group revenues derived from North America should increase from 14% pre-Russell to 21% pro-forma, or 32% if Russell Investment Management is included as well. The exchange is reviewing Russell Investment Management, which is likely to be sold, while it keeps Frank Russell Index to take advantage of the growth of assets in passive funds.

Last November the London Stock Exchange Derivatives Market received regulatory approval to sell UK and International Order Book stock, depositary receipt and index options to certain US registered broker-dealers and large financial institutions.

Bertrand said: “Russell will be a new source of products on an ongoing basis and we need to find the right ones which will be attractive to investors in a competitive market.”

Featured image via igor/Dollar Photo Club

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