The London Stock Exchange shrugged off fears that its revenues had slumped with a better-than-expected trading update, which sparked a 10 per cent jump in its share price. Yet analysts are still nervous as the prospect of competition looms and economic conditions continue to deteriorate.
The LSE posted an 8 per cent rise in revenues to £178m in the three months to the end of June, lifted by international listings, a rise in trading volumes and the contribution from Borsa Italiana, the stock exchange group it bought last year.
Clara Furse, the chief executive of the LSE, said: "The exchange has delivered a good performance, achieving growth despite weak market conditions in a changing regulatory landscape."
The shares rebounded 69p to close at 740p yesterday, signalling a collective sigh of relief from investors. On Tuesday, the shares had fallen to a two-year low, spooked by predictions from broker Sanford Bernstein that the exchange would announce a 4 per cent revenue drop, on a day that the entire market sunk.
Michael Long, analyst at Keefe Bruyette & Woods, said: "The results were relatively okay and ahead of expectations. But this doesn't mean the prospects are suddenly a whole lot better. The threat of competition and the gloomy outlook for European equity markets hasn't changed."
Competition is coming in the form of four upstart electronic trading venues. The electronic broker Instinet has already launched Chi-X, which has eaten into the LSE's market share in the UK, and in September three more go live: Turquoise, backed by nine investment banks, and platforms set up by BATS Trading and Nasdaq/OMX.
At the end of last month, the LSE hit back, outlining its plans to launch a rival platform called Baikal, in partnership with Lehman Brothers.
Daniel Garrod, an analyst at Citigroup, said: "The possible impact on LSE trading volumes and necessary pricing response is the most crucial issue impacting the share in our view. Today's trading update provides little new on their ability to defend themselves."
He admitted that revenues were better than expected. Despite domestic companies predominantly shelving plans to list during a time of high volatility in the markets, the LSE's international marketing paid off. In the past quarter, it saw 73 new issues, with around one-third on the main market, raising a total of £34bn.
A spokesman said the listings were mostly from the emerging markets, especially Russia and the Middle East. He said: "International business is hugely important for the LSE to offset the decline in the West."
Trading volumes have also grown at the exchange, espec-ially electronically, in the first business quarter, lifting the LSE's commission revenues. Elsewhere, its acquisition of Borsa Italiana last year for €1.1bn (£870m) brought in revenues through the addition of post-trade services such as clearing and settlement.
The two exchanges expect to be fully integrated by late autumn, while the launch of an Italian version of AIM, the UK growth market, is due before the end of the year. It has also formed a joint venture with the Tokyo Stock Exchange to launch a growth market in Japan.Reuse content