London Stock Exchange Group Plc · LSE:LSEG
London Stock Exchange — Investor Day (May 2015)
70 slides from London Stock Exchange's investor day presentation, May 20, 2015
Slide 1: London Stock Exchange Group plc Post Trade Update
London Stock Exchange Group plc Post Trade Update 20 May 2015
Slide 2: Xavier Rolet – Welcome and introduction
Xavier Rolet – CEO London Stock Exchange Group Welcome and introduction
Slide 3: Agenda
Agenda LCH.Clearnet: • Strategy and Ambition – Suneel Bakhshi (LCH.Clearnet Group CEO) • Financial Update – Gordon McNair (LCH.Clearnet Group CFO) – Steve Briscoe (LCH.Clearnet Global Head of Technology & Operations) • Market Environment, Opportunities and Focus – Michael Davie (LCH.Clearnet Group C
Slide 4: Strategic focus
Strategic focus Unique open-access model - working in close partnership with our customers; open to competitors • FTSE Intellectual property Indices, Data and Technology • Russell • MillenniumIT • Global listings Primary and Secondary Capital formation • Trading; equity, fixed markets income and der
Slide 5: Post Trade Services – core part of interconnected Group
Post Trade Services – core part of interconnected Group Group Adjusted Total Income CY 2014: £1,381.1m Interconnected markets infrastructure business Note: Chart excludes Russell Investment Management revenues London Stock Exchange Group Page 5
Slide 6: Multiple growth opportunities
Multiple growth opportunities • Cost efficiencies – incremental €40m Phase 2 savings, plus further IT saves • Incremental revenue opportunities in our Post Trade businesses, totalling €175m to €250m • Additional opportunities from US Repo clearing and Portfolio Margining London Stock Exchange Group
Slide 7: Suneel Bakhshi – Strategy and Ambition
Suneel Bakhshi – LCH.Clearnet Group CEO Strategy and Ambition
Slide 8: Delivering growth through significant transformation
Delivering growth through significant transformation LCH.Clearnet Vision • To be the most trusted clearing house in the markets we serve Priorities for our unique, open access CCP • Resiliency • Efficiency • Innovation Delivery of improved operating performance • Re-organised the leadership team • C
Slide 9: Highly experienced & expanded senior management team
Highly experienced & expanded senior management team Christophe Martin David Diane Bouwmeester Hémon Pluves Weisbrod Group Head Resiliency & Efficiency Chief Executive Chief Executive Chief Executive Legal & Officer Officer Officer Compliance LCH.Clearnet SA LCH.Clearnet Ltd LCH.Clearnet LLC 1 Q1 20
Slide 10: LCH.Clearnet Group Operating Model
LCH.Clearnet Group Operating Model Building the most trusted CCP in the markets we serve Regulated CCPs Limited SA LLC SwapClear Rates SwapClear Listed Rates Sales & Relationship Management Repos Fixed Income Fixed Income Global Product Cash Cash Equities Listed Derivatives Listed Derivatives Commod
Slide 11: Growth through continued efficiency and innovation
Growth through continued efficiency and innovation Phase 1: Immediately €60m run rate savings addressable cost base p.a. in 2015 Complete Phase 2: IT transformation • Changes to design and Further €40m savings sourcing / procurement p.a. by exit 2017 • Shared Services centre In-progress • Offshoring
Slide 12: Affirmation of LCH.Clearnet competitive positioning
Affirmation of LCH.Clearnet competitive positioning Most trusted Margin Multi-asset Global Unique open Operational CCP risk Model class footprint access model Efficiency management Stability LCH.Clearnet 1st 1st 1st CME Clearing 2nd = 2nd 2nd Eurex Clearing 2nd = 3rd= 3rd= ICE Cl
Slide 13: Financial Update – Gordon McNair, Steve Briscoe
Gordon McNair – LCH.Clearnet Group CFO Steve Briscoe – LCH.Clearnet Head of Technology & Operations Financial Update
Slide 14: Strong and diversified financial performance
Strong and diversified financial performance Adjusted Income up 23% at organic and constant currency LCH.Clearnet 2014, Income £389.4m • Successfully grown SwapClear business to £100m+ revenue line Net treasury income, 60.0 SwapClear, 109.6 • SwapClear revenue share arrangements successfully re- Oth
Slide 15: Cash collateral & NTI returns
Cash collateral & NTI returns - LCH.Clearnet 60 20 Billions 18 Net Treasury Income (NTI) 50 16 Drivers: 14 • Quantum of cash collateral 40 12 • Spread between rate paid and received Cash collateral – €billion Return – bps 30 10 8 NTI returns: 20 6 • Low impact from negative rates 4 • Mix of Euro, US
Slide 16: Risk Management & Capital Strength
Risk Management & Capital Strength CCPs as a circuit breaker Market Operator Loss Absorbing Resources Loss Absorbing Resources Scaling depends on member introduced risk Scaling depends on operator introduced risk Regulatory Capital Initial Margins Capital Buffers • Capital requirements ~€100bn fully
Slide 17: Phase 1 - Successful cost reduction programme achieved
Phase 1 - Successful cost reduction programme achieved • Originally targeted €23m of savings by year 3 (2015) • Increased cost synergy target of €60m now successfully reached – €30m achieved in year 2 (2014) – €45m achieved programme to date – €60m full run-rate in 2015 • Staffing reduced by almost
Slide 18: Phase 2 - Accelerate pace of change and deliver €40m incremental savings
Phase 2 - Accelerate pace of change and deliver €40m incremental savings Incremental savings of €40m on a run rate basis by exit 2017 will be achieved through: • Procurement – Leveraging the combined buying power across LSEG • Shared Services Company (SSC) – Initial provision of shared technology ac
Slide 19: Phase 3 - Business Driven Transformation
Phase 3 - Business Driven Transformation Challenge Approach Outcome Rationalise clearing Duplication across platforms Increased products and CCPs operational Harmonise business leverage Complexity slows services across asset innovation Resilience classes Multiple legacy Faster time to Ma
Slide 20: Phase 3: Delivering through Technology Innovation
Phase 3: Delivering through Technology Innovation • Leveraging world-class technology from LSEG delivered by MillenniumIT • Partnering with existing strategic suppliers for best in class capabilities • Building momentum of delivery with first strategic components in 2016 London Stock Exchange Group
Slide 21: Michael Davie – Market Environment, Opportunities and Focus
Michael Davie – LCH.Clearnet Chief Operating Officer Market Environment, Opportunities and Focus
Slide 22: Multiple drivers of growth
Multiple drivers of growth • Regulatory change − Dodd-Frank, EMIR, MiFID/MiFIR • Customer demands − Incremental choice − Risk reduction − Capital / balance sheet efficiency − New clearing services • Product innovation − New products & services in more geographies London Stock Exchange Group Page 22
Slide 23: Growth through innovation
Growth through innovation • Innovation comes in different forms The know-how, the platform, the delivery and the approach • Partnership has proven to be effective for LCH.Clearnet Member & client engagement to design, develop and deploy new solutions • Open Access Is a key differentiator, within ass
Slide 24: Open Access – opportunities for a horizontal CCP
Open Access – opportunities for a horizontal CCP • Open Access is the principle at the heart of free and fair markets. Open Access A key differentiator • Open Access gives customers the freedom to choose where to list, trade, clear, report trades or settle • Distinctive feature of LCH.Clearnet – the
Slide 25: Equities & Derivatives: Competitive Positioning & Growth Prospects
Equities & Derivatives Competitive Positioning & Growth Prospects European equities Total European equities (cash and (cash and listed derivatives clearing) derivatives) revenue pool estimated at Estimated revenue pool c.€400m 450 400 Regulatory changes (including MiFIR open 350 access provision
Slide 26: Daniel Maguire – Opportunities and Developments
Daniel Maguire – LCH.Clearnet Global Head of SwapClear & Listed Rates Opportunities and Developments
Slide 27: SwapClear – key business metrics
SwapClear – key business metrics SwapClear is the pre-eminent OTC rates clearing service for all participants, globally Future Statistics (SwapClear global service) 2010 2014 SwapClear 5 year clearing revenue profile(1), m Trend Number of clearing members 35 98 160m Number of dealers 52 168 €134m 14
Slide 28: Competitive global coverage and largest liquidity pool
Competitive global coverage and largest liquidity pool • Largest IR derivatives liquidity pool and choice of execution brokers, in all products and currencies • SwapClear has clients and members in 34 countries • Regulatory oversight in 19 jurisdictions London Stock Exchange Group Page 28
Slide 29: Market landscape, market share and opportunity
Market landscape, market share and opportunity OTC derivative notional outstanding: $602trn1 Clearable market $293trn (BIS)2 FX Uncleared - 73% currently cleared; Clearable 13% 20% 20% remaining primarily CDS 2% European Asset Managers Equities 1% Potential opportunity Uncleared - Options 7% Cleared
Slide 30: Significant Buy-side clearing opportunity
Significant Buy-side clearing opportunity European Opportunity Typical profile of European Asset Managers CCP Quality Major Client Types Sovereign Bonds ~20% Banks Other ~5% IRS Regional Banks ~50% Hedge Funds Inflation Asset Managers • ~25% Large, directional, long dated zero coupon swaps •
Slide 31: Compression – Delivering huge industry value
Compression – Delivering huge industry value • Notional outstanding (OI) is capital-intensive and Measure efficiency Notional: flow versus outstanding therefore undesirable SwapClear Client vs. CME Jan’14 to Apr’15 • Notional outstanding in IR derivatives is now $150trn decreasing, as new daily flow
Slide 32: Cleared Inflation Swaps – rapid delivery and immediate adoption
Cleared Inflation Swaps – rapid delivery and immediate adoption Partnership > Regulatory Approval > Delivery At Pace > Immediate Adoption • SwapClear is the first clearing service globally to be approved to clear zero coupon inflation swaps, with approval from BoE (under EMIR) and CFTC • Inflation c
Slide 33: Rates portfolio margining
Rates portfolio margining – LCH.Clearnet covers the entire curve Key rates products to hedge interest rate risk or speculate on rates DSFs SwapClear OTC Rate Derivatives Government Bond Futures 3M Futures Cash Bonds 2 5 10 30 50 Years Leadership Positions: LCH.Clearnet: OTC IR Derivatives– 17 curr
Slide 34: Future opportunities
Future opportunities • Growing capital pressures prompting market to seriously appraise benefits that we could offer in addition to clearing of rates • Strong reputation built in clearing, arguably the most complex area of market infrastructure • We will use our expertise in Rates clearing with the
Slide 35: Bruce Kellaway – Opportunities and Developments
Bruce Kellaway – LCH.Clearnet Global Head – RepoClear Opportunities and Developments
Slide 36: Strength in European bonds
Strength in European bonds LCH.Clearnet Nominal and Term Adjusted Volumes 45 ICMA Survey Outstanding Balances & LCH.Clearnet Nominal Volumes cleared (€trn) LCH.Clearnet TAV outstanding (€ trn) 9 European Repo Market, % 40 8 35 Bank to Bank 7 (uncleared) 30 Bank-to-Customer 6 LCH.Clearnet Market 25 (
Slide 37: Organic growth – all about netting
Organic growth – all about netting Organic Growth Strategy • New members • Recent product enhancements + More members – €GCPlus, our new Triparty service + More trades • Future product enhancements + More netting – Variable rate repos + Increased capital efficiency – Open/Evergreen repos + Risk redu
Slide 38: LCH’s innovative triparty product - €GCplus
LCH’s innovative triparty product - €GCplus At triparty repo is cash secured against a basket of collateral €GCplus Trading €GCplus Cash platform Cash taker provider c.€3-7m pa incremental opportunity Clearing House Robust risk and default management. • Group partnership with MTS Netting • Triparty
Slide 39: End user clearing opportunity in Europe
End user clearing opportunity in Europe Phase Initiative Description Timeline #1 ‘Cash Lender • End users join our service, but can only lend money via (triparty) repo Q4 2015 Only’ model • Allows banks to borrow money from end users and net against other – in development trades • Detailed workshops
Slide 40: Geographic expansion opportunity
Geographic expansion opportunity 7 US vs Europe Repo market US Repo market 6 Bank To Bank To Bank Client 5 (Uncleared) (Uncleared) USD trillions 4 3 2 1 Bank To 0 Bank US Europe (Cleared) Cleared by LCH Cleared by Other Uncleared • Leverage ratio is a global phenomena • US is biggest bond market glo
Slide 41: Potentially transformative opportunity in US
Potentially transformative opportunity in US US Repo Service Offering Product Ambition • Agency client clearing has broadest appeal to members and end users (accounting more favourable under US GAAP than IFRS) • Members are incredibly engaged – balance sheet issue is urgent for them • Detailed produ
Slide 42: Gavin Wells – Opportunities and Developments
Gavin Wells – LCH.Clearnet Global Head – ForexClear Opportunities and Developments Page 42
Slide 43: ForexClear – The FX Landscape
ForexClear – The FX Landscape $bn/day FX NDF and Options Market Forwards Options & 600 $680bn NDFs – both $350bn $337bn listed in 500 Dodd Frank $127bn 400 Act and EMIR $5.3 Trillion 300 $179bn per day 1 200 Swaps 100 $2,228bn 0 2001 2004 2007 2010 2013 2014 NDFs Options $60 Million per second • The
Slide 44: ForexClear – The FX Opportunity
ForexClear – The FX Opportunity NDFs - $127bn Regulation focused on • $126bn<1 Year Vanilla Options - $200bn NDFs and Options • $1bn>1 Year • Bilateral Margin Requirement • Bilateral Margin Requirement • Capital Requirements incentive • Capital Requirements incentive • Could clear 75% NDFs are non-d
Slide 45: ForexClear – Moving from NDFs to Options
ForexClear – Moving from NDFs to Options Executions - FX Options and Hedges (Spot / Forwards / Swaps) up to 2Y Continue to do what a Exercise / CCP does – managing risk Execution Expiry Working with members and clients in Settlement (2 days) Settlement Failure partnership..... or Settlement Default
Slide 46: ForexClear’s competitive advantage as the market leader
ForexClear’s competitive advantage as the market leader Total Monthly Cleared Notional • 20 members, $2.9 trillion cleared in 3 years $140 • With a team largely hired from the FX market, $103.17bn $94.53bn $120 taught clearing over the last four years $84.84bn $71.79bn $100 • Making the most of LCH.
Slide 47: Serge Harry – Introduction to globeSettle
Serge Harry – Settlement Chairman – globeSettle Introduction to globeSettle
Slide 48: The CSD environment is undergoing transforming change
The CSD environment is undergoing transforming change Change catalyst Description Implications for CSDs • Requires collateral received by CCPs as initial margin or for default reserve New opportunities for 1 EMIR Art 47.3 funds to be deposited with a Securities Settlement System (SSS) CSDs Creates c
Slide 49: Post trade asset services addresses a large pool of securities
The post trade asset services business is addressing a large pool of securities IMF estimates that securities issued across the world reached $800 to $1,000 trillion $800 -$1,000 trn Collateral opportunity: pool of high quality liquid assets $75 trn Marketable potentially $41 trn safe assets Issued
Slide 50: The European landscape – fragmented and attractive
The European landscape – fragmented and attractive • There are 19 CSDs and 2 ICSDs, each with over Total AUC in Europe (incl. UK): €51 trillion €100bn assets under custody (“AUC”) in Europe Other • Over €51 trillion AUC with these I/CSDs at the end of Iberclear 9% Euroclear Bank 4% 2014 SIX-SIS 23%
Slide 51: The European landscape – fragmented and attractive (cont’d)
The European landscape – fragmented and attractive (cont’d) • Total revenue pool in Europe of €3.7bn in 2013 and 2013 Total Revenue: €3,700m €4bn in 2014 • Largest player by revenue is Euroclear Group, the 42% 30% 14% 14% parent company of 1 ICSD and 6 local CSDs • Euroclear’s revenue was over €1bn
Slide 52: Collateral management growth opportunity
Collateral management growth opportunity Global demand for collateral is expected to increase by $4 trillion as new regulations are implemented $4 trillion Additional $1.8 trn collateral needed in the industry Liquidity $1.0 trn coverage ratio and bank capital Initial margin for requirements non-cen
Slide 53: globeSettle’s vision: an innovative and effective industry solution
globeSettle’s vision: an innovative and effective industry solution Notary (custody) Central Administration • Safekeeping service in terms of both physical and • Comprehensive Corporate Action services dematerialised securities • Processing of interest and dividends • Record keeping of assets held e
Slide 54: globeSettle’s competitive advantages
globeSettle’s competitive advantages Open - access • globeSettle operates on an open access basis, servicing all market players including CCPs, collateral agents, custodians and the Eurosystem Neutral • globeSettle does not offer services in competition with its customers: globeSettle offers a centr
Slide 55: globeSettle’s growth opportunity
globeSettle’s growth opportunity • Growth in Europe across existing and new business opportunities ‒ Competition is intensifying ‒ Securitisation is growing: enterprises will issue more corporate bonds and equity instruments to raise capital, reducing reliance on bank loans ‒ globeSettle, as issuer
Slide 56: Mauro Dognini – Target2Securities (T2S)
Mauro Dognini – Settlement CEO Monte Titoli Target2Securities (T2S)
Slide 57: EMIR, CSDR and T2S are impacting the collateral chain in Europe
EMIR, CSDr and T2S are impacting the collateral chain in Europe • Clients increased focus on Risk Management • Wave of new regulations: CSD Regulation • Secured vs unsecured financing needs collateral management services to help Financial Institutions to increase efficiency and decrease counterparty
Slide 58: T2S project
T2S project • T2S is the centralised settlement platform of the ECB • Project launched in 2006 - aims to reduce cross border settlement costs, concentrate liquidity in central banks money, harmonise all markets with same market practises • 24 CSDs have committed to migrate to T2S by 2017 • For a smo
Slide 59: T2S - opportunity for Monte Titoli (1/2)
T2S - opportunity for Monte Titoli (1/2) - T2S is a tipping point for the market: introduction of standardization and harmonization, so competition among CSDs and custodian banks at EU level - T2S is the opportunity to position Monte Titoli for increased European profile - #3 CSD in Europe with over
Slide 60: T2S - opportunity for Monte Titoli (2/2)
T2S - opportunity for Monte Titoli (2/2) Enhance product offering for T2S • Enhance our competitive Assets Servicing to support European Custody (i.e. Swift, fiscal services) • Develop value added custodial services to cross sell to the existing client franchise: • Triparty collateral management sys
Slide 61: Market opportunity
Market opportunity - T2S new products and geographical expansion in Europe targeted to generate about 2/3 of an aggregate €25m pa. revenue growth by 2020 Global Market Agent Banks Domestic Domestic Client clusters & ICSDs Custodians Banks Brokers Infrastructures & Issuers and brokers SWF 2014 2020 A
Slide 62: Xavier Rolet – Summary
Xavier Rolet – CEO London Stock Exchange Group Summary Page 62
Slide 63: Multiple growth opportunities
Multiple growth opportunities • Cost efficiencies – incremental €40m Phase 2 savings, plus further IT saves • Incremental revenue opportunities totalling €175m to €250m: • Client clearing €30m - 40m p.a. • Compression €10m - 15m p.a. • Inflation swaps €10m p.a. • European Repo service €10m - 20m p.a
Slide 64: Appendix
’ Stock Exchange Group Appendix
Slide 65: Highly experienced & expanded management team
Highly experienced & expanded management team • Suneel joined from Citigroup with over 30 years of experience in trading, banking and risk management. Suneel was President and CEO, Citigroup Global Markets, Japan Suneel Bakhshi • Prior to this, he held several senior risk roles from 2008-2011, havin
Slide 66: Management team (cont’d)
Highly experienced & expanded management team (cont’d) Ali Hackett • Ali is responsible for maximising the value, reach and range of the Group’s existing customer relationships whilst pursuing new member and client business opportunities. Prior to joining LCH.Clearnet, Ali served as an industry advi
Slide 67: Management team (cont’d)
Highly experienced & expanded management team (cont’d) Daniel Maguire • As Global Head of SwapClear & Listed Rates, Daniel Maguire is responsible for managing SwapClear, the world’s leading interest rate derivatives clearing service of LCH.Clearnet. Maguire has 16 years of industry experience in ris
Slide 68: Management team (cont’d)
Highly experienced & expanded management team (cont’d) Frank Soussan • Frank Soussan joined LCH.Clearnet SA in November 2014 as Head of In-Business Risk for CDSClear • He started his career in 2005 at SocGen in New York as a trader of Credit Correlation, CSO Tranches and CDS Global Head of • He join
Slide 69: IRS adjusted market volumes
IRS adjusted market volumes $ trillions Dec-14 Dec-10 Dec-11 Dec-12 Dec-13 Jun-14 (Est) (RGNO) BIS Reported Gross Notional 465.3 504.1 489.7 584.4 563.3 505.5 Outstanding - IRS (AFCT) Adjustment Factor for Cleared 124.2 141.9 170.7 227.7 230.6 212.9 Transactions LCH.Clearnet (single-counted) gross n
Slide 70: Disclaimer
No representation or warranty, expressed or implied, is made or given by or on behalf of London Stock Exchange Group plc or any of its subsidiaries or affiliates (the “Company”) or any of its directors or any other person as to the accuracy, completeness or fairness of the information or opinions co
London Stock Exchange Group — Investor Day (May 2015) on 6ix