Microsoft deal that proves London is the king of stock markets – NOT Paris

A landmark £1.4 billion deal between Microsoft’s Satya Nadella and the effusive London Stock Exchange Group chief executive David Schwimmer was sealed in a series of online video calls between the two executives last weekend.

Once the loose threads were tied, Microsoft’s chief commercial officer, Judson Althoff, caught the red eye heading to London to climb the steps of the £1.5 trillion computer and software giant.

The new relationship didn’t just happen that way. The London Stock Exchange and Microsoft have spent hours behind the scenes, involving hundreds of engineers on both sides of the Atlantic, to bring the two companies’ ambitions closer together.

Deal: David Schwimmer of the London Stock Exchange (left) and Judson Althoff

The talks “began over a year ago and have included countless virtual calls in teams between experts,” Schwimmer told The Mail on Sunday. For the former Goldman Sachs banker, it’s another transformative deal, following the American’s blockbuster £22 billion takeover of Refinitiv, the former data and trading arm of Reuters, last year.

In a post-Brexit era when so many British companies have shown reluctance to invest, it was once again a foreign entrepreneur who ran a major British company to recognize the city’s global leadership as a financial center – one that is now poised to do so to benefit from the freedoms that the UK’s new status in the world offers. Instead of acting as a seven stone weakling to be won over by potential buyers, the LSE has firmly rejected all comers for two decades.

Successive CEOs Dame Clara Furse and Xavier Rolet largely resisted wooing from Deutsche Boerse, Nasdaq and the Hong Kong Stock Exchange, opting to go it alone.

Under Schwimmer, the LSE has risen to a £45bn behemoth, more highly valued than any of Britain’s main road banks save for HSBC, which is under siege.

There are those interested in ripping off London’s crown of commerce and information powerhouse. Data rival Bloomberg trumpeted Euronext and the Paris Stock Exchange that they had overtaken London in cash trading in equities. Schwimmer is irritated by exaggerations based on shoddy data.

But is the French CAC All-Tradeable Index really overtaking the FTSE All-Share?

He tells me the Paris claim is based on “only a few trading days in November 2022”. Those who argue for Paris superiority excluded “international funds, ETFs (exchange traded funds), IPOs (initial public offerings – or flotations) on the LSE, capital raising and much more” from their calculations, he argues. As the European Union focuses on 20th-century cash trading and launches a campaign to move some derivatives trading and clearing to the continent, the LSE is breaking new ground.

The deal with Microsoft not only brings the LSE to the “cloud” and helps make it more flexible and efficient, but also accelerates London’s ability to process and analyze data. The Microsoft alliance equates to the 21st Century US dealings between the Nasdaq and the Chicago Mercantile Exchange with Silicon Valley, giving them access to the cloud and the best in engineering.

To start, the LSE has agreed to spend a relatively modest $2.8 billion (£2.3 billion) on its cloud computing capacity over the next decade. Microsoft believes at least $5 billion can be reaped.

The partnership with Microsoft also allows the LSE to intensify its battle with Bloomberg and other data providers in the trading rooms and on the desks of investment bankers, hedge funds and brokers via Refinitiv. It is also intended to bring forth new products.

As former Wall Street banker and author Michael Lewis demonstrated in his book Flash Boys, speed is key and creates an advantage in financial trading. The arrival of Big Tech in market business, data and analytics is a new frontier.

The LSE has come a long way from its beginnings in the cafés lining the back streets of the Square Mile in 1698. The stock market itself has increasingly become an adjunct to its ability to process and analyze financial data across the board and to aggregate planet.

In addition to Europe’s dominant location for the settlement of complex transactions – the London Clearing House – the LSE also has opportunities for trading in foreign exchange, fixed-income securities and derivatives.

The world of cash trading is clearly at the heart of what London stands for and Schwimmer has the credit of having its fair share of IPOs and fundraising in a year that has seen markets around the world suffer from extreme volatility.

Schwimmer and the LSE, with a Microsoft engineer now on the board, can truly claim to be the city’s first institution to take advantage of new freedoms, reaching across the Atlantic and the Far East.

Silicon Valley’s arrival in the world of stock markets and financial data could give regulators concerned about the power of big data pause. But the rocket to cloud trading has already left the launch pad.