LSE benefits from global financial market turmoil

The London Stock Exchange emerged as a major beneficiary of the turmoil on global financial markets yesterday, revealing that its revenues were up 15 per cent during the final three months of the year. The LSE benefited from a 56 per cent increase in the average number of daily equity trades, as investors struggled to cope with market volatility.

The exchange also revealed that this surge in trading has continued in the new year, with a 130 per cent increase in trading volumes so far this month.

The figures, a like-for-like comparison with a year previously, are the first set of numbers posted since the LSE bought Borsa Italiana, the Milan-based stock exchange, in October. Clara Furse, the LSE's chief executive said the two bourses were making "good progress" on integration.

LSE shares soared yesterday, closing 173p – 11 per cent – higher at 1,751p. However, analysts pointed out that while the choppy state of markets had boosted equity trading, it had also hit the new issues market, an importance source of revenue for the LSE.

Revenue from flotations fell 3 per cent in the third quarter, with the number of IPOs in London and Milan down 40 per cent to 108 during the quarter. All but seven of those issues took place in London.

Ms Furse warned that she was cautious about the outlook for the fourth quarter, with a pick-up in the new issues market unlikely. The exchange has also been hit by rising costs, resulting in a sharp fall in the profit it makes on each trade.

Longer term, the LSE is also likely to face mounting competition, with financial deregulation across the European Union enabling rivals to offer trading services more easily.

Simone Glass, an analyst at UBS, said she expected the LSE to continue to prosper this year, but warned it was now highly valued and therefore vulnerable to setbacks. "Near-term, exchanges are likely to be beneficiaries from volatile market conditions," she said. "On 20 times' earnings, however, any downward revisions of earnings could subject the sector to de-rating."

The warning would also apply to ICAP, the interdealer broker, which joined the LSE yesterday in revealing gains from the credit crisis and its knock-on effects on other markets. ICAP said trading volumes on its electronic currency platform were up 42 per cent in the final quarter of last year, while trading in fixed-income platforms hit a record.

Michael Spencer, the broker's chief executive, said: "Steeper yield curves, volatility in foreign exchange and continuing activity in the credit markets suggest that this period of increased activity may continue for some time."

Shares in ICAP outperformed the LSE, rising 14 per cent to close at 666p last night.