London Stock Exchange revenues boosted by surge in volatility

London Stock Exchange Group reported a 16 per cent year-on-year rise in third-quarter revenues to £1.9bn, as market volatility and a rush to raise collateral boosted the company’s earnings.

A trading update on Friday showed the owner of the London Stock Exchange and London Clearing House benefited from market uncertainty triggered by the UK government’s ill-fated “mini” Budget last month.

Unfunded tax cuts contained in the “mini” Budget triggered a surge in gilt yields, sending UK pension funds scrambling to sell assets and raise cash in order to meet margin calls on derivative investments. The fallout also heightened volatility, with gilt yields soaring and the pound plunging against the dollar.

LSEG said net treasury income had jumped as a result of both increased clearing activity through LCH and extra margin being called on trades.

“Cash collateral at LCH reached an all-time high in September, driving net treasury income up 41 per cent,” said Anna Manz, chief financial officer, while cash collateral rose 45 per cent year on year in the third quarter to €151bn.

Chief executive David Schwimmer said roughly 30 per cent of the group’s revenues come from trading and transactions, which “tends to benefit from the volatility and the uncertainty in an environment like this”.

“Some of the uncertainty driven by the inflationary environment, we’re certainly seeing the benefits of that in the trading businesses, particularly around interest rate swaps, particularly around some of the government bonds and then also in FX,” he added.

LSEG’s capital markets revenues rose 8.6 per cent to £369mn with a “benefit from volatility” in September.

Revenue from post-trade activities rose 10.4 per cent. Although pension funds are not obliged to clear their trades, some do so voluntarily. The vast majority of the world’s interest rate swaps are cleared at LCH.

Revenue from LSEG’s data and analytics services jumped 15.4 per cent to £1.2bn in the three months to September. The group is continuing to integrate its £27bn acquisition of data provider Refinitiv, which closed in 2021.

LSEG shares were down 2.4 per cent in late-morning trading on Friday, against a fall of 0.7 per cent for the FTSE 100 index.