David Prosser: The London Stock Exchange struggles to stay with the pace

Outlook For those who do not follow the relatively arcane world of international stock exchanges, the news that the London Stock Exchange, the grand-daddy of them all, is no longer a Premier League player in its industry may come as a surprise. But that is the truth of the matter: assuming the deal with TMX goes through, the combined operation would still only be the world's seventh-largest bourse.

The LSE has been eclipsed in various ways. Its former chief executive, Clara Furse, spent much of her time in charge fending off takeover attempts from the likes of Nasdaq and Deutsche Börse. Though the LSE has done some deals, notably with its opposite number in Italy, it has not been a part of the major global consolidations. Indeed, its deal with Toronto looked rather parochial yesterday in the context of the breaking news on the New York Stock Exchange and Deutsche.

At the other end of the scale, meanwhile, technology-driven new entrants to the market, especially Chi-X, have been steadily eating away at its share of the market. Less than 60 per cent of trades in shares in constituents of the UK's blue chip FTSE 100 Index now take place on the LSE, for example.

Nor has the LSE been quick enough to bring new products to market, particularly in the area of derivatives trading where Xavier Rolet, appointed to drag the company into the future just under two years ago, has still to unveil the fruits of his labour. Clearing has been a major omission too.

That's not to say the LSE has done nothing. Its purchase of the Sri Lankan outfit MillenniumIT has given it capital markets technology which is genuinely second to none – its systems will improve the LSE's own performance and can also be sold to rival exchanges.

Now, however, Mr Rolet appears to be making a bet on something that is a little less modern: thenatural resources sector. The tie-up with the Toronto Stock Exchange will create an entity that is miles ahead of its rivals in terms of listings or mining and resources companies (the deal with the Mongolian Stock Exchange announced last week will help, too). That might not seem very whizz-bang, but in the context of the commodities super-cycle it may prove to be a smart move.

It is certainly a different way to compete with those exchanges that have left the LSE behind. And Mr Rolet deserves credit for his imagination. Will his rivals be worried? Well, talk of a counter bid was rapidly subsumed by the NYSE-Deutsche news. For now, they have bigger fish to fry.

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