May 13, 2011 / 10:07 AM / 7 years ago

UPDATE 4-LSE in show of strength as pursues TMX merger

* LSE has filed TMX merger application in Canada

* Shares rise 3.7 percent

(Adds TMX results)

By Luke Jeffs

LONDON, May 13 (Reuters) - The London Stock Exchange (LSE.L) exceeded profit forecasts on Friday, giving chief executive Xavier Rolet’s strategy a welcome lift ahead of his planned expansion through the purchase of Canadian group TMX (X.TO).

The British exchange has seen its share of domestic equities trading slump in the past three years amid increasing competition from upstarts such as Chi-X Europe and Bats Europe.

“We have seen strong growth in our fixed income businesses, exchange traded funds and derivatives. We are also starting to see positive impact from technology sales,” Rolet told Reuters Insider TV in an interview.

LSE shares were 3.4 percent higher at 846 pence at 1200 GMT, against a 0.7 percent rise in British blue chips .FTSE.

The LSE, which also said it had filed its application to merge with TMX, easily beat analyst forecasts, reporting 2010 profit up 22 percent to 341 million pounds ($555.5 million).

This compared to 280 million pounds in 2009 and was well above a forecast of 314 million pounds in a poll of 14 analysts.

Separately, TMX also reported strong earnings for the first quarter of the year, with profits up 13 percent on last year to $64.3 million. [ID:nL3E7GD1TD]

Rolet has been working hard to diversify the business since his appointment in May 2009, looking to derivatives trading, clearing and technology services for growth, and credited his strategy for the better-than-expected results.

"Good growth in post-trade, technology and information was offset by a weak performance from all parts of the secondary markets with UK cash equities being the worst performer and the exception being fixed income," brokerage Numis said in a research note. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Reuters Insider show on ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Rolet’s boldest move for the 210-year old exchange is the planned $3 billion merger with Canada’s TMX Group, a deal that will enable the LSE to tap into TMX’s stable of booming mining firms.

Last month the LSE’s domestic market share fell below 50 percent for the first time in the U.K. exchange’s 210-year history, Thomson Reuters data showed.

The group’s main capital markets business was down 5 percent, while data services added 9 percent, and technology services 23 percent. Its fledgling clearing business was the stellar performer, rising 217 percent.

Revenues increased 7 percent to 675 million pounds, up on last year’s 628.3 million pounds, and above analyst expectations of 651.1 million pounds. The dividend for the period was 26.8 pence, above a forecast for 25.9 pence.

The LSE has been working behind the scenes on its clearing strategy, which will could see it reduce its reliance on its current supplier LCH.Clearnet.

Its pan-European trading platform Turquoise will start its challenge to European futures incumbents — NYSE Euronext Liffe and Deutsche Boerse’s Eurex — next month, when it launches FTSE 100 futures.

Its merger plans in Canada have encountered opposition from banks there, but the two are pushing ahead.

The exchanges said they had filed their regulatory approval application with the Canadian provincial securities authorities in Ontario, Quebec, Alberta and British Columbia, all of which must pass the merger.

TMX Chief Executive Tom Kloet, who reported on Friday first quarter revenue up 17 percent to C$174.7 million, said: “We recently initiated the approval process and look forward to working with the various federal and provincial authorities to achieve the necessary approvals.”

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