LSE Begins Talks with Turquoise

Turquoise officials stated in August that the MTF was looking to be acquired. Nasdaq OMX was rumored to be one of the suitors. However, Nasdaq OMX officials decline to comment on the speculation.

If the LSE were to purchase the MTF it would represent the second major acquisition for the exchange since Xavier Rolet assumed the role of CEO earlier this year (DWT, Feb. 16). Less than a month ago the LSE surprised the industry with its £18 million ($30 million) acquisition of Sri Lankan exchange platform provider MillenniumIT (DWT, Sept. 21).

It would be an interesting strategic move, according to Miranda Mizen, a principal with industry analyst firm Tabb Group Europe. "Since Rolet came on board, there have been a number of moves he has made to show that the LSE is looking to move forward and cut costs. He is looking to improve the LSE's relationships, expand its trading capabilities and move into the clearing space. Put those together and they create a more solid strategic move forward."

"What we are seeing is ... a very subtle power play between the big exchanges, banks and brokers," adds Steve Grob, director of strategy for trading platform and market connectivity provider Fidessa. "Rolet has come into the LSE and a big part of his plan is to reach out to the [banks and brokers] and rebuild some of those relationships. Buying Turquoise back from them would be a good way of doing that."

There is some debate among industry participants as to what the LSE would actually be purchasing with Turquoise, since the MTF licenses the bulk of its technology from Swedish exchange technology provider Cinnober (DWT, June 15).

"If the LSE acquires Turquoise, how will Turquoise, which outsources technology to Cinnober, plan to run the technology systems side by side with the LSE?" says one unnamed industry source.

That wouldn't be possible without the LSE spending more money on licensing fees, says Paul Pickup, director with London-based consultancy Trading Technology. If the LSE is acquiring Turquoise to move the business from Cinnober onto TradElect or MillenniumIT, they will be essentially shutting it down," he says. "This will prove to be a very costly way of winning back market share."

Mizen says there are a number of things about Turquoise that are potentially attractive. "It has liquidity on it, it is a pan-European platform, it has a network of brokers, it is already coded into routing tables and it is a dark order book that is interesting," she says. "The key is how Turquoise would be integrated, assuming the whole of it [is acquired]. We don't know what kind of deal we are looking at right now. The LSE would be buying a technology company and expanding its clearing," she says.