Business Initiative with OM
London Stock Exchange Plc
09 December 2002
Joint Announcement
9 December 2002
LONDON STOCK EXCHANGE AND OM TO CREATE NEW EQUITY DERIVATIVES BUSINESS
London Stock Exchange plc and OM AB announced today that they are to develop and
provide derivatives market services specifically tailored for equity market
participants through the creation of a new international equity derivatives
business, EDX London.
EDX London will combine the strength of London Stock Exchange's global equity
market offering and expertise, with OM's flexible technology and experience in
equity derivatives. Initially, EDX London's business will be built around the
Scandinavian equity derivatives business of OM's London subsidiary, OM London
Exchange. EDX London will take responsibility for the operation of this
business, expand the product range and seek to create new business lines.
Part of EDX London's initial focus will be on the development, in conjunction
with London Clearing House (LCH), of an over-the-counter (OTC) equity
derivatives trade confirmation and clearing service for wholesale market
participants, which will provide capital and operational savings. This will
reduce the cost and risk of conducting OTC business and is a facility not
currently available for the growing OTC equity derivatives market in London.
This service will be developed in close collaboration with the participants in
this market.
EDX London will join a broad trading community, comprising the existing
memberships of Stockholmsborsen, London Stock Exchange and the Scandinavian
exchanges that are already linked to OM London Exchange. In addition to OM
London Exchange's 84 member firms, London Stock Exchange's 292 member firms will
be provided with access to EDX London.
EDX London will use OM's CLICK exchange technology platform together with OM's
SECUR clearing technology platform. Separately, an agreement has been reached
for London Stock Exchange to use OM's CLICK to enhance the growth of its
recently launched covered warrants market by providing additional IT systems
flexibility and scalability.
EDX London will immediately be included in OM's global community of technology
customers (which includes American Stock Exchange, Athens Derivatives Exchange,
the Australian Stock Exchange, Borsa Italiana, Hong Kong Exchanges and Clearing,
International Securities Exchange in New York, and the SFE Corporation in
Sydney), and aims to build business relationships and exploit synergies with
members of that community.
In due course, EDX London will seek to build on the order-book sharing
arrangements which OM London Exchange already has in place, in co-operation with
a number of other markets. From the outset, the network will consist of EDX
London and Stockholmsborsen, Oslo Bors and Copenhagen Stock Exchange, members of
the NOREX Alliance.
Welcoming the new initiative, Clara Furse, Chief Executive of London Stock
Exchange, said:
"This initiative with OM represents an important business opportunity for the
Exchange. In collaboration with OM and LCH, we will be providing the growing
equity derivatives markets in London with new products and services, which will
reduce risk and cost. We are pleased to be associated with OM's highly-regarded
derivatives technology and expertise, and look forward to being able to develop
an international equity derivatives market around their network of clients."
Per E. Larsson, President and CEO of OM, added:
"The formation of EDX London together with London Stock Exchange, Europe's
leading equity exchange, creates an exciting opportunity for OM. EDX London
underpins our shared vision of further expanding a network of markets on a
common technology platform, providing key synergies to customers as well as
exchange partners."
EDX London will pay OM a consideration of £24 million for the transfer of the
equity derivatives business of OM London Exchange. London Stock Exchange will
hold a 76 per cent controlling stake in the new company with OM holding a 24 per
cent strategic interest, underlining its commitment to the success of the
business. The earnings effect following the creation of EDX London is expected
to be broadly earnings neutral, in operating terms, for both parties.
Subject to approval as a Recognised Investment Exchange by the Financial
Services Authority, EDX London intends to begin trading in the second quarter of
2003.
- Ends -
For more information, please contact:
London Stock Exchange John Wallace - Media +44 (0)20 7797 1222
Paul Froud - Investor Relations +44 (0)20 7797 3322
Ruth Anagnos - Investor Relations +44 (0)20 7797 3322
Finsbury James Murgatroyd +44 (0)20 7251 3801
Cazenove Christopher Smith +44 (0)20 7457 3304
OM Anna Eriksson - Media +46 70 554 52 06
Jakob Hakanson - Investor Relations +46 8 405 60 42
Gavin Anderson Howard Lee +44 (0)20 7554 1401
Chris Salt +44 (0)20 7554 1464
Lenner & Partners Lars Lenner +46 8 54 50 61 10
London Stock Exchange and OM to Create New Equity Derivatives Business
Introduction
London Stock Exchange plc and OM AB announce the formation of EDX London, a
jointly-owned business for the development of a London-based international
equity derivatives business. London Stock Exchange will have a 76 per cent
shareholding and OM 24 per cent.
EDX London will acquire the existing Scandinavian equity derivatives exchange
business owned and operated by OM London Exchange, a subsidiary of OM. EDX
London will use technology provided by OM, principally CLICK for derivatives
trading and SECUR for clearing.
It is intended that all contracts traded on EDX London will, as soon as
practicable, be cleared through London Clearing House.
Subject to approval as a Recognised Investment Exchange by the Financial
Services Authority, EDX London intends to begin trading in the second quarter of
2003.
EDX London - the market opportunity
EDX London plans to develop a service specifically for the trade confirmation
and clearing of sufficiently standardised equity derivatives transacted
over-the-counter (OTC) between wholesale market participants. Such a facility is
not currently available for OTC equity derivatives business in London, and
discussions with LCH on its delivery are already in progress.
The OTC service will provide significant efficiencies for market participants,
including capital and operational savings. EDX London will build this service in
very close collaboration with the OTC market participants, many of whom are
members of LCH.
EDX London will also build on the trading of Scandinavian derivatives products
currently transacted through OM London Exchange. In the longer term, London
Stock Exchange and OM see opportunities to increase trading through EDX London
in a broader range of order book traded equity derivatives and to provide for
operational synergies between cash and derivatives markets.
London Stock Exchange member firms will be offered membership of EDX London,
adding to OM London Exchange's customer base, and introducing more choice to
firms whose business has hitherto been cash market focused.
OM London Exchange, Stockholmsborsen, Copenhagen Stock Exchange and Oslo Bors
have established a linked distribution network operated on CLICK - Linked
Exchange Clearing (LEC). EDX London aims to expand the LEC concept further to
reach a broader range of customers through other collaborating exchanges.
Separately, an agreement has also been reached for London Stock Exchange to
adopt CLICK for the future growth of its recently introduced market in covered
warrants.
Description of OM London Exchange
OM London Exchange, a subsidiary of OM, was established in 1989 and is a UK
Recognised Investment Exchange offering exchange services and clearing of
Scandinavian equity derivatives. The trading volume has continuously grown
since the start. Through the link with the Scandinavian exchanges OM London
Exchange is currently transacting some 25 per cent of all exchange traded
Swedish derivatives.
OM London Exchange also owns and operates UK Power Exchange (UKPX) and operates
Pulpex (a commodity market). These markets will continue to be operated by OM,
and will not be included in the formation of EDX London.
OM London Exchange has 84 member firms and the daily trading volumes at OM
London Exchange amount to 60,000 contracts. Between 1996 and 2002, estimated
CAGR volume growth at OM London Exchange has been 29 per cent per annum.
% of contract volume
(2002 to date)
Single equity options and futures on approximately 70 55
Scandinavian stocks
Equity index futures and options on the OMX Index, Oslo 45
Bors Index and Copenhagen Futures Index
OM London Exchange offers trading and clearing services. A real time clearing
link exists with Stockholmsborsen, Oslo Bors and the Copenhagen Stock Exchange.
There are 48 Direct and General Clearing Members of OM London Exchange. Clearing
is delivered through OM's SECUR system.
Financial information
London Stock Exchange and OM will establish EDX London with London Stock
Exchange holding 76 per cent and OM 24 per cent respectively of the voting and
equity share capital. At completion, EDX London will make a payment in cash of
£24 million to OM as consideration for the transfer of OM London Exchange's
derivatives business.
Revenues and operating profit for the Scandinavian derivatives business during
2001 and for the first nine months of 2002 have been as follows:
Nine months ended Year ended 31st
30th September 2002 December 2001
£ million £ million
Revenues 5.6 10.6
Operating profit 0.8 2.9
Notes
(i): The above financial information has been extracted from the management
accounts of OM London Exchange.
(ii): The earnings effect following the creation of EDX London is expected to be
broadly earnings neutral, in operating terms, for both parties.
(iii): Revenues include estimated contributions of £1.0 million and £2.2 million
respectively from activities related to management of collateral. Income from
these activities is likely to reduce when clearing of trades is transferred to
LCH.
(iv): For further financial information on OM, see separate OM press release
issued today.
Board and Management
EDX London will be managed by Marc Bailey, London Stock Exchange's Director of
Business Development, and will have a board of ten directors. Two will be
independent, two appointed by OM and six by London Stock Exchange.
Approximately 30 existing employees of OM London Exchange are expected to
transfer to EDX London at completion.
Conditions, Regulatory consents and timing
Completion of the agreements for establishing EDX London is conditional on:
(i) the Financial Services Authority's approval of EDX London as a
Recognised Investment Exchange for the purposes of the Financial Services and
Markets Act 2000;
(ii) Office of Fair Trading clearances; and
(iii) certain OM London Exchange members moving to EDX London.
The conditions to completion must be met no later than 1 July 2003.
Advisors
London Stock Exchange has been advised by Cazenove & Co. Ltd. and OM by Lenner &
Partners Corporate Finance AB.
09 December 2002
This information is provided by RNS
The company news service from the London Stock Exchange
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