LSE/NLX rumours false but interesting nevertheless

LSE/NLX rumours false but interesting nevertheless

The latest rumour doing the rounds is that the serial acquirer, the London Stock Exchange is weighing a bid to buy Nasdaq’s NLX.

FOW understands the rumours are false but, like any good rumour, it is the plausibility of the suggestion that carries it in the wind.

On the face of it, the acrimonious history between the LSE and Nasdaq would rule out any bid.

But when you begin to think about the LSE’s ambitions and its challenges, a deal to buy NLX might make sense.

The LSE is currently in the process of developing a derivatives platform to trade swap futures and interest rates.

Like any new exchange it faces two significant challenges: competition and connectivity.

At a time when banks and brokers are swamped with essential regulatory updates, getting on the development list to connect to a new exchange is a big challenge.

So too is persuading tech vendors to connect and waiting for them to write to the new exchange.

This process can take up to a year in normal times possibly longer in the current climate. All of this delays the launch during the window of opportunity for swap futures.

Buying NLX would provide the LSE with a market ready platform and mitigate the challenge of connectivity and set up.

The other element is competition.

NLX is also known to be planning a swap future launch and as the LSE launch will also clear into LCH, there is the prospect of two almost identical offerings fragmenting liquidity.

Whether Nasdaq would sell is currently an academic question – Bob Greifeld has a lot of personal and shareholder capital invested in NLX.

But the question might become more pertinent if NLX fails to attract more banks and buy-side firms onto the market over the coming months.