The deal – which will see the London Stock Exchange take a 60% stake – is delightfully ironic as Turquoise was set up in 2006 with the express intention of forcing the LSE to cuts its charges.
The consortium of banks which founded it (including Goldman Sachs and Morgan Stanley) were fed up of paying through the nose to trade on the Stock Exchange, so they founded Turquoise in an effort to drum up some competition and force LSE to cut its prices. For the backers which have invested an estimated £30m in the platform it is likely to be red faces all round this morning..
The benefit of the acquisition for the LSE will be two-fold. Firstly, it has taken out a competitor, rarely bad for business. Secondly, Turquoise has a well-established electronic ‘dark’ trading pool which will very nicely bolster LSEs own fledgling Baikal offering. Dark pools offer trading which is not disclosed on a public order book, allowing large investors to buy and sell without alerting rivals.
That’s not to mention the delicious ‘I told you so’ feeling which LSE chief exec and chairman-designate of Turquoise, Xavier Rolet, must be enjoying right now.
With the benefit of 20:20 hindsight, the platform’s official launch date of summer 2008 doesn’t look like the best timing for a trading exchange. Only a few short months later, concerns over the fees levied by stock markets would have plummeted down the list of City priorities, in rather the same way that someone who falls down the stairs suddenly stops noticing that headache they woke up with.
In the midst of the recession, how much it cost them to buy and sell shares became the very least of the banks' worries. But back in 2006 it probably looked like a pretty good idea, and Turqoise’s founders are far from alone in having failed to call the downturn. Had the economy taken a different path, Turquoise might have been able to do its job and everyone would have been happy. Apart from the LSE if course, but only a weed complains about too much competition.
Not that Turquoise was ever terribly likely to have achieved much more than a modest reduction in the cost of trading. After all, the essence of stock exchanges is that there can only be one dominant player in the market at any given time, and in London the LSE has filled that particular vacancy for really quite a long time.
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