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New L.S.E. Chief Aims to Regain Lost Ground

LONDON — Beekeeping is a major challenge but if handled correctly results in copious amounts of honey. Xavier Rolet, the new chief executive of the London Stock Exchange Group and a beekeeper on his French estate, is hoping that the stings of the L.S.E.’s many competitors will not stop him from re-establishing it as one of the world’s top exchanges.

The emphasis, he says, will be on technology and derivatives.

“There are significant growth opportunities around expanding the range of financial products — carbon, shipping, derivatives, energy — on a pan-European basis,” he said during a recent interview at the exchange’s headquarters.

Mr. Rolet, 50, has faced a lot of challenges recently. His previous job as a career banker was as chief executive of Lehman Brothers in France, which ended traumatically when he had to wind up the company last year after the parent bank entered bankruptcy. He is proud nonetheless to note that “we found jobs for the vast majority of employees.”

He also regularly competes in the Dakar Rally — and lost about 30 pounds, or 15 kilograms, during the grueling drive earlier this year, which for the first time included stretches through Argentina and Chile.

The married father of three — and the first Frenchman at the helm of the L.S.E. — started his new job on May 20, a few days later than initially planned so that he could compete in a father-son soccer match.

Now he is focused on helping the L.S.E. catch up. From a dominant position in the 1980s, it lost headway to other exchanges, including most recently those of Hong Kong and Brazil. Earlier this month, those two stock market-listed exchanges became larger by market value than the L.S.E., the NYSE Euronext or the Nasdaq OMX, the latter two being trans-Atlantic exchanges.

Listed exchanges are, however, far from the only rivals. The European Union’s Markets in Financial Instruments Directive, known by the acronym Mifid and enacted in 2007, opened share trading markets to competition. This includes share trading platforms, called multilateral trading facilities, like Turquoise, set up by a group of investment banks, and so-called dark pools, which allow the matching of large blocks of shares without prices’ being revealed until after trades are completed.

“He has a sophisticated understanding of how exchanges will evolve,” said Jeremy Isaacs, the former chief executive for Asia and Europe at Lehman Brothers, who has known and worked with Mr. Rolet for 20 years. “At Lehman Brothers, we were the biggest traders on the London Stock Exchange. Xavier was in charge of our joint venture with them, and he learned about being at the cutting edge of innovation.”

Mr. Rolet, who got his M.B.A. from Columbia University in New York, took over at L.S.E. from Clara Furse, who was much criticized during her tenure for failing to form an alliance with a major competitor. The L.S.E.’s merger with Borsa Italiana two years ago was perceived as a rather desperate last sprint by a laggard in the race. It is projected to deliver cost synergies of £32 million, or $52.5 million, over a number of years.

In the financial year ended March 31, the group posted a 23 percent increase in revenue, to £671.4 million, which translated as a 1 percent rise on a pro forma basis, assuming the merger with Borsa Italiana had taken place on April 1, 2007, the start of the fiscal year. (It was actually completed in November 2008.)

On Wednesday, the L.S.E. reported that its first-quarter revenue was down 8 percent, to £161.9 million. But that was not as bad as some analysts had expected, and its shares rose 3.6 percent for the day.

On the derivatives side, the L.S.E. is transforming its E.D.X. platform through new technology, with a restart expected in November. Mr. Rolet, a technology buff, hopes this will result in a gain in market share.

Meanwhile, the L.S.E. is looking to Baikal, its dark pool, which begins a phased start this month, to be at the forefront of the exchange’s push into Continental European markets.

Mr. Rolet insists that he is not worried that the L.S.E.’s strategy could be undermined by a forthcoming European Commission review of Mifid. It appears to be hostile to dark pools, reflecting concerns by financial regulators that they lack transparency. The U.S. Securities and Exchange Commission is already investigating what its chairman, Mary Schapiro, calls “potential investor protection and market integrity concerns” surrounding dark pools.

“Mifid was a seven-year-long process involving a lot of consultation but also local regulation,” Mr. Rolet said. “I doubt that a process that took seven years to conclude can be reformed in just a few weeks.”

On the other hand, a push by regulators to have over-the-counter derivatives traded on exchanges to lower risk and increase transparency would be beneficial to the L.S.E.

Mr. Rolet, who dismissed the expensive teas available for visitors during the interview as “bull market products,” expects to lower fees for clients — competitors have already lowered theirs — as well as reduce costs overall as part of a strategic overhaul. In late June the L.S.E. announced it was cutting more than 5 percent of its staff and was likely to drop its expensive TradElect electronic trading system.

It is too early to say whether he can move the L.S.E. closer to the pole position, but the challenge may be comparable to handling bees.

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