Transcript: What the London Stock Exchange really trades

This is an audio transcript of the Unhedged podcast episode: ‘What the London Stock Exchange really trades’

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Katie Martin
So in the UK, politicians, bankers, all kinds of people are all fretting about one thing, which is the long, slow, painful death of stock market listings in London. But when one company left London earlier this year, we asked the chief executive of the London Stock Exchange Group what he thought. And he said, and I quote, that sort of is what it is. What is up with that? Let’s find out.

This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I’m Katie Martin, and this is a very special British Unhedged podcast today because the Americans are all off eating. I’m joined by Nikou Asgari, who is my desk buddy. We are growing some bonsai together (Nikou laughs) in the fridge. When we’re not growing bonsai, we’re talking about things like the London Stock Exchange Group. Welcome to the Unhedged podcast, Nikou. What is going on here? Like whenever you are out and about in London now, there are these very strange advertising slogans in train stations and on top of like cabs saying, others do some of what we do, but not everything we do.

Nikou Asgari
So catchy.

Katie Martin
It’s a really catchy catchphrase. It’s the slogan for the London Stock Exchange Group. Tell me, Nikou, ’cause I know you’ve been writing about this recently. What are they talking about?

Nikou Asgari
Yes. They have this very weird promotional campaign. And one of the videos, the start of it is, in finance, names can be a bit misleading. Take ours, for instance, which is, like, such terrible branding. It’s just saying our name is bad.

Katie Martin
Yes. You might be confused about our name, so are we. There’s a good reason for that. Yeah, they’re very much banging the drum that we’re not just about London and we’re not just about the stock market, but, like, politicians in the UK really care about getting the stock market rolling again and getting lots of listings, making sure that we hold on to the companies that were already listed here. Why? Why is this such a big deal? Is it just a kind of, you know, bragging rights thing?

Nikou Asgari
I mean, partly. But I think part of it is to do with the culture of finance and in growing new companies and having that culture in the UK and saying, hey, we can grow new companies, we can list new companies. The founders make money. Shareholders who invest in them, whether it’s a pension fund, whether it’s a retail trader, they can make money. And just cultivating this environment in a way that perhaps doesn’t exist at the moment because these companies are just going to New York.

Katie Martin
I mean, that’s what people say about the UK, isn’t it? There’s a really vibrant market for venture capital. Like if you’re a start-up, then there are some sort of specialist investors out there that will back you and kind of get you up and running. But as soon as you want money in size, right, you want to list on a stock market, like, British investors are like very cautious. They don’t like taking a punt on things. It’s a cultural thing. It’s like what I always come back to when I’m thinking about how, you know, we are two countries divided by a common language in terms of the US and the UK is that in the US, when everyone got their stimulus checks in Covid, it was like, here’s some money to tide you over while you can’t work. What did Americans do? They punted it on stocks. What is wrong with you people? If you gave Brits a ton of cash and said, here you are, do with it what you will.

Nikou Asgari
Just stick it in your savings account.

Katie Martin
We would go to the pub. Or we put it in savings. We don’t put it in stocks. And that means that there’s just less money sloshing around helping companies to grow. Unless they’re pubs. It’s all about the ecosystem. And so having the stock market onside in terms of being a really important part of that ecosystem, I guess like really matters. So to the extent to which the LSE has gone down a different route and is looking for data as a business and reckons that’s the kind of shining beacon on the hill, is it working or is it just losing money hand over fist?

Nikou Asgari
No, it’s working. They’re making money and they’re growing. They made about 4bn in the first six months of this year. And yeah, they’re growing. It’s not a lossmaking endeavour. And two-thirds of that money is coming from data compared to about 3 per cent from listings, which just shows the complete disparity, right?

Katie Martin
Yeah. But this hasn’t cut through to the general public, right? That’s why they’re running this ad campaign, because people still think they’re just a stock exchange.

Nikou Asgari
Yeah. They’re trying to sort of get away from that. I mean, the taxis have pictures of the Eiffel Tower and the Statue of Liberty and these sort of non-UK symbols to show they’re also . . . 

Katie Martin
In the ad campaign.

Nikou Asgari
Yeah, in the ad campaign on the taxis driving through London to show that we are doing things in other places too.

Katie Martin
There are cities other than London out there. You heard it here first. So has it lost its way or has it come up with something much better to do?

Nikou Asgari
Well, it kind of depends who you ask, really. The data is where it’s making its money, you know, on everything from foreign exchange, stocks, bonds. It packages up this data, sells it to the banks and the asset managers who can look and trade with this data, understand what they’re trading with. But if you ask, I guess, politicians, you know, people who are really at the heart of making sure that London remains a really key listing capital markets destination, not just for Europe but across the world, they are concerned because if the London Stock Exchange isn’t focusing on listings and on bringing new companies here and helping them raise money, then who is? It’s not really clear what fills that hole.

Katie Martin
Who’s flying the flag? So, I mean, there’s a certain extent to which we Brits are very good at beating ourselves up about things, right? There is a global dearth of IPOs, of initial public offerings, companies hitting stock markets. But is it actually worse in the UK than it is anywhere else?

Nikou Asgari
Well, you have to look at all the companies that are choosing — the few companies, frankly — to list and the British ones that are choosing to list but going to New York most of the time, a couple to Amsterdam, but they’re not choosing London and they’re going to New York. And you have to ask the question of why not London? Like, what is it that we’re missing here that New York is offering? And why isn’t the London Stock Exchange sort of waving its hands in the air and saying, hey, no, we are great, come and list here and we’ll help you?

Katie Martin
Hmm. I mean, what bankers say to me is, you know, yeah, there are companies that head off to New York for listing, but it’s really tough out there. You’re a tiny fish in a massive pond, and you put out one set of, like, slightly downbeat numbers and you get eaten alive by the US investment community and they never let you back in. And the grass is not necessarily greener if you go and list anywhere else. You know, nonetheless, the government here in the UK is really hot on this issue, right, about getting companies back on to the stock market and making this an exciting market to be, because I think I’m right in saying that, like, one of the biggest companies in the FTSE 100 and our main stock index is still, like, British American Tobacco. Like, our stock market is all about . . . 

Nikou Asgari
Natural resources, some energy companies. But it’s not the sort of shiny, you know, Arm, the chipmaker — a British company — went and listed in New York. It’s not the tech companies, the high-growth companies. It’s still quite a traditional stock market.

Katie Martin
Old economy. And, you know, the danger is that becomes kind of irrelevant . . . 

Nikou Asgari
Yeah.

Katie Martin
. . . economy over time. So I think I’m right in saying, right, London Stock Exchange Group — LSEG, it likes everyone to call it. Brackets, no one actually calls it LSEG. Everyone calls it the LSE. But, like, they get what, 4 per cent of their revenues from actually trading shares. So there’s a good reason why this is not like their number one priority, right?

Nikou Asgari
Yeah. It’s, you know, 3 to 4 per cent annually that they make from money from listing, from trading equities. And this sort of push into data makes about two-thirds of their revenues, which is obviously far, far bigger. And that’s why they’re focusing on that. They bought Refinitiv, which is this big data company, much bigger than the LSE itself, a few years ago for $27bn and that sort of helped them go deeper into data. Microsoft has a 4 per cent stake in LSE Group, and it’s all part of this sort of push into data, into AI, into making money from all of the data they have across capital markets.

Katie Martin
So what is this data, right? You know, if there is less trading going on on the London stock market and if there are fewer listings on the London stock market, where are they getting all of these magical numbers from?

Nikou Asgari
They don’t just have numbers that exist solely on the LSE. They have access to, you know, currency data, debt equity markets across the world, and they sort of package this up and sell it to banks and asset managers and pension funds and anyone who needs, who this would be helpful to, to understand the trades or to understand what’s going on in the markets. And they sell this sort of as a recurring subscription, which is a steady income unlike listings where who knows when the next IPO will be if the economy is bad whereas this, you know, recurring data is much steadier and much higher income for them.

Katie Martin
So are people at the LSE looking up the road at that shiny, shiny Bloomberg building (Nikou laughs) just around the corner from FT towers and thinking, mmm we’d like a piece of that, please?

Nikou Asgari
I think they would never say it out loud because Bloomberg is really the pinnacle of financial data companies, but they’re trying in a way to compete with Bloomberg in terms of having the data, having, you know, the traders being able to chat to each other and having it all in one place and making themselves that place rather than Bloomberg. But it’s a very uphill hill to climb (laughter) because, yeah, Bloomberg is so big and so entrenched across Wall Street, across trading floors everywhere in a way that the LSE Group is not.

Katie Martin
Yeah, they’d love a bit of that, right? So Bloomberg sell their terminals for $2,000 a month each terminal. So every time you see one of these terminals on the trading floor somewhere . . . 

Nikou Asgari
That’s money.

Katie Martin
That’s decent cash, isn’t it? But I mean, isn’t it funny like, you know, the grand sort of arc of history here means that what financial services value as a commodity is not companies and shares. It is just flashing numbers on a screen.

Nikou Asgari
Yes. It’s just the data that they can make money from and understand.

Katie Martin
So you sat down with the chief executive of LSEG.

Nikou Asgari
LSEG.

Katie Martin
Indeed.

Nikou Asgari
They insist on calling it that.

Katie Martin
You’ve sat down with him recently, David Schwimmer. I mean, how passionate is he about firing up London stock market listings?

Nikou Asgari
How do I phrase this? (Laughter) His focus is on the data side of the business and on the Microsoft deal and on the AI products that they’re gonna make and all of that shiny stuff. He’s very defensive of London. He said, you know, a lot of the companies that choose New York over London say that they get a higher valuation in New York, which is why they go there. And he said that that was a myth and that’s not true. And they’ve done some work on this. You know, he said that calling out London’s listings market is not doing very well, it’s just clickbait and he’s, you know, he’s very defensive about his role and the company’s role in this. But in terms of what they’re actually doing, I don’t get a sense of sort of urgency from them about how they can help UK companies or other companies list in the UK. He always points to, for example, UK government reforms around pension funds and . . . 

Katie Martin
I mean that is fair. That is fair. And you know, we just had the Autumn Statement, which is a kind of budget from the UK chancellor and he was talking about precisely this, about unlocking these vast pools of money that are stuck in British pension schemes and which currently are extremely focused on bonds and saying, isn’t there a way we can peel some of this money out into stock markets? Now the government, you know, can’t tell investors where to put their money. That’s not how this works. So there’s every possibility that if pension funds had that little bit more leeway to put money to work in the stock market, they’d put it in the US stock market like everybody else. Like, why would they bother with the UK market, which doesn’t tend to perform that well? But the government’s serious about this. It really sees equity finance as a way to kick-start and maintain growth, right?

Nikou Asgari
Yeah, absolutely. And Schwimmer’s all behind that, you know, completely pro these changes and hopes again that that money will go into UK listings, which might not, like you say, but it’s sort of one of the main avenues to try and boost the UK.

Katie Martin
So, you know, I guess where this all leaves us is should we be, you know, or should the government be relying on the London Stock Exchange Group to really back the London Stock Exchange? You know, is this really the right organisation to try and pick this up?

Nikou Asgari
It’s a hard position for them to be in because they have the branding and the more than 300 years of history. And you think of the London Stock Exchange Group and you think of just the exchange and the listings, but their focus is just really not on that anymore. It makes such little money for them and their eyes are over there looking at the shiny sort of data money. I think for the government, they still think of the LSE as that core listings venue and it’s pretty hard to sort of detach the two, right? There are other venues in the UK, but they’re much smaller and they attract much smaller companies. So whether they can sort of find somewhere to fill that gap or take the place of the LSE is very, very difficult.

Katie Martin
Yeah. And look, we’ll see the results of this next year because what every investor says is next year should be easier in markets. We kind of understand where we are on interest rates and inflation a lot better than we did this time next year. And you know, bankers that work on sort of getting companies actually listed on stock markets always say, well, there’s a great pipeline.

Nikou Asgari
Yeah. Magical pipeline that always exists.

Katie Martin
This pipeline of companies just queueing up to list on the markets and you’ll see they’ll come through. And they’ve been wrong all year, but maybe they’ll be right next year. But, you know, the extent to which I guess we’ll have the LSE Group to thank for that when, if and when it actually happens, is up for debate. You reckon now they’re gonna pull it off? What’s your guess? This time next year do you think there’ll be a bonanza of loads of companies listing?

Nikou Asgari
I don’t know about bonanza, this magical pipeline that all the bankers talk about, I don’t know if that exists. I mean, I’m sure there will be some companies listing on the LSE Group, but, you know, how big they’ll be, whether they’ll do well, who knows?

Katie Martin
Do you think we’ve lost the race to really compete with the US for a kind of snazzy, exciting stock market?

Nikou Asgari
I think so. I think the founders just look at the US, look at the valuations they get. The more investors there and think, hey, like, that’s just so much shinier and so much better for us.

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Katie Martin
Everything’s bigger in America. (Laughter) OK. We’re gonna have to leave it there, but we will be back in a moment with Long/Short.

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Right. Now it’s time for Long/Short, that part of the show where we go long a thing we love, short a thing we hate. It can be anything. Nikou, do not fear this task. Are you long or short this week? And what of?

Nikou Asgari
I’m so excited. I am short BNB coin.

Katie Martin
Ah!

Nikou Asgari
Binance’s token of choice. Because Binance’s CEO, CZ, agreed to step down this week and agreed to pay about $4bn in fines to the US.

Katie Martin
$4bn!

Nikou Asgari
Yes. Gadzooks. And it’s just chaos over there at Binance HQ, if they had one.

Katie Martin
(Laughter) Yeah, I mean, the complaints against Binance were the documents that have come out from, like, the US Treasury and the Department of Justice. They’re really worth reading because they say that this crypto exchange has been facilitating trades that appear to be linked to money laundering by the likes of . . . 

Nikou Asgari
Stunning roster.

Katie Martin
. . . Hamas, al-Qaeda, Isis. There are trades relating to Iran, North Korea, occupied Crimea. There are flows of money that appear to be linked to child abusers, to cyber criminals. They’re really throwing the kitchen sink at . . . 

Nikou Asgari
Yes, a real strong roster of clientele.

Katie Martin
Yeah. And the fine itself is like one of the largest financial settlements in history.

Nikou Asgari
Yeah. I think the US are pretty pleased with themselves.

Katie Martin
So you are short BNB coin which is Binance’s own special little token. I think this feels like a reasonable bet. OK, I’ll be long gilts. I’ll be long UK government bonds because — do you remember roughly this time last year there was a sort of autumn-time “mini” Budget from the UK government and it just like was like a stick of dynamite under the bond market and everything went wrong very quickly. We’ve just had an Autumn Statement from the new chancellor and . . . Nothing. Calm, beautiful calm. So thank you for not torching the UK government bond market like the last lot. This is a much, much calmer environment for financial journalists everywhere. Thank you for your service.

Nikou Asgari
Yes, indeed.

Katie Martin
So Nikou, thanks for joining us for your first ever Unhedged podcast. It wasn’t too painful.

Nikou Asgari
No, I really enjoyed it. Thank you.

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Katie Martin
And then we can get back to our bonsai seeds, which are in the fridge, but for a good reason, right?

Nikou Asgari
Yes. To help them grow and clearly labelled “Do not bin”, so.

Katie Martin
Do not bin, do not eat. If you’re listening to this, FT newsroom, do not eat the bonsai seedling. Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. Special thanks to Laura Clarke, Alastair Mackie, Jacob Weisberg and Jess Truglia. FT Premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com/unhedgedoffer. I’m Katie Martin. Thanks for listening.

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