Xavier Rolet is a man with an impressive résumé. A military brat, he grew up in a hardscrabble Paris suburb, graduated from the elite Institut des Hautes Etudes de Défense Nationale, taught at the French air-force academy and acquired an MBA at Columbia University before embarking on a successful career in investment banking. Along the way he acquired an award-wining winery in France's Rhone Valley, kept bees, competed in the punishing Paris-Dakar rally and co-authored the report that launched Galileo, Europe's rival to America's GPS satellite system.
But what's this debonair Frenchman doing running the London Stock Exchange (LSE)? Denizens of the City London's financial hub are gluttons for champagne but that's the only French product most are prepared to stomach. Their current bogeyman is France's E.U. Commissioner, Michel Barnier, now spearheading European financial reform. Wouldn't France's interventionist approach to markets count a Frenchman out of a job running one of the world's centers of laissez-faire capitalism?
No. Xavier "is simply the best man for the job," explains LSE chairman Chris Gibson-Smith, pointing out that Rolet spent six years in London with Lehman Brothers when he also chaired the LSE's Strategic Advisory Group. He "understands our clients because he was one."
Those clients are increasingly international, another good reason to bring in something of an outsider. E.U. reforms in 2007 exposed once dominant national exchanges to competition from smaller, nimbler and cheaper bourses. Five years ago, the LSE handled 95% of trades in top U.K. equities; now its share is down to 60% and it will be headed lower if upstarts like Chi-X Europe continue to steal market share. Chi-X is just one of a growing number of pan-European, high-speed, low-cost, alternative trading venues known as Multilateral Trading Facilities, or MTFs, now giving traditional exchanges a run for their money. So too are so-called dark pools, electronic venues that handle large transactions anonymously so as not to tip off traders in the open market. "These are turbulent times," says Rolet, 50, who learned all about dislocation during the collapse of Lehman Brothers. "We are moving in directions that are hard to forecast."
Rolet sees the world moving to a system of just a handful of dominant, pan-global exchanges. His job is to make sure the LSE merged since 2007 with Borsa Italiana is one of them. Since taking over as CEO a year ago, Rolet has moved swiftly to improve London's survival prospects. Demoted during the crisis from the FTSE 100 index of top companies it supervises, the LSE has now been reinstated. And despite the rough ride, London's is still the pre-eminent international IPO venue with 600 companies from 71 countries listed and $151 billion raised last year alone.
To deal with the MTFs, Rolet has hit back with his own. When he arrived at the exchange, nine of the LSE's largest banking clients, frustrated with its pricing structure, had set up their own pan-European MTF called Turquoise. The LSE countered with the creation of the wittily named Baikal, the LSE's own dark pool, and on his ascendency Rolet persuaded the banks to sell him a majority stake in their creation. With Baikal and Turquoise merged and the banks back on board the LSE is battle-ready for the MTFs. It's also mobilizing to cope with the latest challenge: high-frequency trading, in which supercomputers and complex algorithms allow hedge funds and the like to deal in the microseconds that can often confer a trading advantage. Such trading now accounts for 60% of U.S. equity volume and is going global. Rolet has also dumped the LSE's creaking trading infrastructure and spent $30 million acquiring cutting-edge Sri Lankan technology company MilleniumIT to build a faster and more reliable platform.
Given the competition and the weakness of the global economy, the LSE's future is still uncertain. Hostile takeover bids, which plagued the LSE during the tenure of Rolet's predecessor, cannot be ruled out and, as last week's events showed, market turmoil is an ever present danger. Always the optimist, Rolet sees exchanges like the LSE profiting in the wake of the economic crisis. "We can be part of the solution," he insists. With banks hoarding cash and refusing credit, companies are turning to the likes of the LSE for the capital they need to shore up balance sheets and grow their businesses. "But we need to change things," says Rolet. "At the moment, tax systems favor debt over equity and it was excessive debt that got us into trouble. We've got to make it easier, particularly for the smaller businesses that are the real engines of growth and job creation, to raise the funds they need. A sustainable recovery needs a broader financing basis than the current one, which is overreliant on bank finance. That's the role of exchanges like the LSE."
Rolet's forthrightness should enable him to win friends in the City. Given the habits of London's traders, that wine from his vineyard wouldn't hurt, either.