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Business Analysis & Features

Exchange looks to life after Clara

Dame Clara Furse's departure will open a new chapter in the LSE's 300-year history. It may be the toughest one yet. Nick Clark reports

So farewell then, Dame Clara Hedwig Frances Furse. The first woman chief executive of the London Stock Exchange stepped down yesterday "after eight somewhat eventful and enjoyable years," and a mixed legacy in charge of the group, which traces its history back to 1698.

She left the dais of the exchange's headquarters in Paternoster Square, London, to warm – if not uproarious – applause. Shareholders, employees and rivals alike have described her as "an iron lady," "Queen Boudicca" and a "mastermind."

Brian Winterflood, the chairman of City stockbroker Winterflood Securities, believes her tenure has been a success. He added: "I'd give her an eight out of 10, with an E for effort. Xavier Rolet is an impressive candidate to take over. This is a bright new beginning." Yet others have raised nagging doubts over her policy during the industry's consolidation drive, saying she failed to face up to the challenges adequately.

Dame Clara believes the business is in a solid position for her successor, and said yesterday it "occupies a unique strategic position at the heart of the financial centre". Others fear the empire is in severe decline.

Yesterday's swansong results showed revenues up 23 per cent to £671.4m, and adjusted operating profit up 17 per cent to £338.6m. However, it was marred as the group fell to £225m pre-tax losses following a writedown from the Italian business. Dame Clara was asked yesterday what qualities are needed to be chief executive of the LSE. "Xavier's got them," she replied. Xavier Rolet, who previously ran Lehman Brothers' Paris office, called it an "honour" to take over a company steeped in such history. "Clara has created a very strong business that is well placed for a successful future," he added.

As the economic downturn has hit the financial markets, the LSE has suffered. Primary listings are down, and trading and data costs falling.

It is a tough challenge, Mr Rolet admitted yesterday, as competition increases. "Customers are demanding more efficiency, with services at ever lower prices. We will meet the challenges." The group is already planning its next technology overhaul, after spending £40m on its electronic platform TradeElect.

One of Mr Rolet's biggest challenges is to fight off a series of alterative trading platforms that have sprung up in the wake of the European Union legislation enacted two years ago. It has sent shockwaves through the European markets, contributing to a plunge in the LSE's share of trading in the UK from more than 90 per cent to 54 per cent.

Octavio Marenzi, the founder of research group Celent, said: "They were caught asleep at the wheel with Mifid." Mifid, the European Union's Market in Financial Instruments Directive, instructs brokers to look at all venues for the best price to trade a stock. A series of upstart trading venues, such as Chi-X and Turquoise, have sprung up and have, according to one rival, "started eating the LSE's lunch". He added: "There was only so much they can do, but I'm pretty sure there was no grand plan to deal with the fallout of Mifid."

High on Mr Rolet's agenda will be a plan to halt the decline on AIM, the company's growth market. There hasn't been a single IPO this year, liquidity is down, and companies have delisted citing the economic conditions. It also faces pressure from rivals, such as Plus Markets.

Another of the exchange's plans to boost trading was hit by pure bad luck, and Mr Rolet will hope it does not prove a headache at the start of his reign. The LSE announced the launch of a new platform to much fanfare last year. Unfortunately, its partner in the venture was Lehman Brothers, whose subsequent collapse put the project on hold. It plans to launch next month.

The group has seen huge change under Dame Clara after she took over in February 2001. She oversaw the company's listing and by the end of her reign she had trebled revenues, lifted operating profits fivefold and paid a dividend seven times as high as in 2002.

The real black mark on her record was failing to bring a world-class derivatives operation to the LSE. She was outflanked by European rival Euronext, which bought Liffe, a derivatives platform, from under her nose. While the LSE has attempted to boost its derivative trading, Mr Rolet does not have an easy task in taking on Liffe or the other European incumbent Eurex.

When asked about her legacy, Dame Clara said she had built a strong management team that has "transformed the exchange. We are clearly the international listing venue of choice". One senior source who works for a rival exchange said: "She has reorganised the LSE well and made it more international."

Mr Rolet signalled he will increase the roster of partnerships such as those signed recently with TMX in Canada, and in Oslo and Tokyo. He will also oversee the full integration of Borsa Italiana, the Milan-based exchange, which it bought for £1.1bn two years ago

That Mr Rolet is head of an independent group is extraordinary after Dame Clara fought off five bids for the group. The move has split the market as some believe she should have sold at almost £13 a share to Nasdaq, as they now trade just under £7. Others disagree.

Brian Winterflood said: "She didn't want to sell the family silver, and that was a great credit to her." Dame Clara backed her decision to reject the bid yesterday. She said: "I think the decisions that were made were very well explained and well received by shareholders."

She said she leaves with few regrets. And now? "I'm going to have a really nice long summer," she said. Mr Rolet will not be so lucky.

Modern challenges: The LSE's biggest threats

* The LSE's biggest rivals have traditionally been the exchange giants on the Continent. It has long been engaged in a bitter battle with NYSE Euronext and Deutsche Börse for listings and trading which has become increasingly acrimonious. Both of the European groups have this year announced that they are launching alternative trading platforms that will also look to take volumes away from London's systems. Both also have significant derivatives operations in Liffe and Eurex, which dwarf the platform run by the LSE.

* Of the upstart "multilateral trading facilities" (MTF), the runaway winner in the UK has so far been Chi-X.

The platform has built up a 7.1 per cent share of UK equity market volume, according to Thomson Reuters. Chi-X was launched by agency broker Instinet in 2007.

* Turquoise was launched last year as the serious MTF challenge to the LSE. The venue had heavyweight backing from nine investment banks, but so far the trading volumes have been disappointing. However, it expects to break even this year and is planning a series of initiatives including launching a derivatives platform.

* The LSE's growth market AIM has suffered in the financial crisis, but rival Plus Markets is also proving a headache as it hit a record volume of trading in the first quarter.