London Stock Exchange Chief Executive Xavier Rolet said the success of his strategy to counter intense competition from upstart rivals in UK cash equity trading should be clear within six to nine months.
It depends on the future shape of clearing in Europe, our roll-out of new technology and our move to cut costs and pass on benefits to clients, he told reporters.
We probably have six to nine months to resolve these issues and solidify our market share, he estimated.
The exchange reported a drop in first-half revenue and profits on Wednesday as lower trading levels and tariff cuts took a toll.
LSE, like other long-standing European exchanges, has been losing market share to mulitalteral trading facilities such as Chi-X and BATS since pan-European regulation opened the market to competition in 2007.
Rolet cited steps to lower trading tariffs, to push for lower post-trade costs, improve technology, diversify its businesses and cut staff as the LSE moves to align its interests closer to those of its major clients.
Even in areas where we see competition, there is still a healthy future for us if we execute our strategy well.
The company said it expected competition in cash equities to remain intense and market conditions uncertain.
Pretax profit dropped 37 percent to 79.4 million pounds ($131.3 million) for the six months to end-September on revenue down 9 percent at 310.9 million pounds versus a year ago.
LSE shares were down 1.53 percent at 834 pence at 1447 GMT.
Equity trading revenues were the main area of decline in the first half. The exchange's monthly market share in the UK has fallen to 58 percent in October from nearly 96 percent in January 2008, according to Thomson Reuters data for trade on transparent and dark order books and auctions.
NEW IT, TARIFF CUTS
The exchange adoped a simplified tariff structure from Sept. 1, which it initially said would cut fees by around 9 percent.
The move resulted in a 15 percent cut in its average yield per trade to 0.8 basis points for October and November versus the average from April to August, the company said.
The impact on yield was higher than we anticipated at the time of the change, said Chief Financial Officer Doug Webb.
Further tariff tweaks are set to kick in from Dec. 1, but they are expected to have a more modest impact, amounting to 1.5 million pounds on an annualised basis, he said.
Tariffs are getting close to a point of stabilisation, given that the pricing of its MTF rivals is set at levels that are structurally unprofitable, Rolet said.
To further chop costs for its clients, LSE is working with Euroclear and LCH.Clearnet to seek a reduction in clearing and netting costs by moving from charging on a gross basis to a net billing basis, Rolet said.
These post-trade costs now amount to about two-thirds of the marginal cost of trading, making the LSE uncompetitive versus the MTFs, which use other clearing systems, he said.
Improvements in post-trade costs are the next area where we are can substantially improve our competitiveness, he added.
Rolet, who took over management in May, shepherded the 18 million pound acquisition of Millennium IT in September to provide a higher-speed, lower-cost trading platform, which LSE aims to be up and running by end-2010.
The company cited 20.4 million puonds in non-recurring costs related to the acquisition in the first half, which diluted earnings per share by 5.5 pence.
He said a lot of progress has been made, and some form of conclusion is around the corner in the LSE's exclusive talks to acquire the Turquoise trading platform, which was launched in 2008 by a group of nine investment banks frustrated by the LSE's refusal to cut fees.
The acquisition would cement the realignment of our business with our core client base and scale up the LSE's business by adding a pan-European trading platform, he said.
The company said a 12 percent cut in staff numbers since the start of the year would lead to 11 million pounds in annualised cost savings mostly realised in the second half.
The post-trade and information and technology divisions increased revenues to reach 53 percent of the group total from 45 percent in the first half.
The LSE also cited record levels of capital-raising for companies in the first quarter, with the flow of secondary issues continuing right through the half-year and beyond.
The pipeline for initial public offerings appears promising for 2010, and the calendar for equity and debt and recapitalisations looks full for the year, LSE said.
(editing by Paul Hoskins and Andrew Callus) ($1=.6045 Pound)