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Now the London Stock Exchange Is Back to Life, It’s Investigation Time

Chris Hughes

(Bloomberg Opinion) -- The London Stock Exchange’s trading failure on Friday came at a bad time for the markets but a relatively good time for its newish CEO David Schwimmer. The former Goldman Sachs Group Inc. banker has been enjoying a glorious honeymoon. It had to end at some point.

The precise cause of the outage, fixed within an hour and 40 minutes, isn’t clear. But when trading isn’t available for such a long period after the scheduled open, something has gone badly wrong. Time for an investigation.

Schwimmer’s mind has been on big strategic matters. That’s what bankers like to do. Last month’s $27 billion deal to acquire the data provider Refinitiv (which competes with Bloomberg LP, the parent of Bloomberg News) from a Blackstone Group LP-led consortium and Thomson Reuters Corp was widely applauded. It saves London Stock Exchange Group Plc’s investment case from being defined by worries about Brexit. As a result, Schwimmer has plenty of personal capital right now. It helps also that he is relatively new and was appointed after a period of board turmoil.

Leading the LSE nevertheless requires operational expertise. Schwimmer ran teams in his previous career, but in taking this job he has chosen a life as a full-time operator. Day-to-day management is as important as the 10-year vision. The consequences of this outage could have been far worse: It's been a volatile week in financial markets. Fortunately, there was little market-moving news flow on Friday morning.

The LSE is a relatively small company, with roughly 4,500 staff. It comprises semi-autonomous silos, partly the result of being assembled through acquisition. When the former CEO Xavier Rolet’s future was in doubt, investors were relaxed about the individual units being able to run themselves if there was a long wait for a successor.

Maybe the LSE’s fragmented organizational structure and governance has nothing to do with Friday’s failure. However, the outage gives Schwimmer a good reason to probe whether operations are sufficiently robust and ask if operational expertise is fully shared across the entire group. While this is a dull job compared to transformational M&A, management so often is.

Refinitiv takes the LSE into new rather than overlapping areas. A big integration looms, although with little overlap it may not hamper the enlarged group’s ability to deal with a mini-crisis like this one. The deal will also further diminish the revenue contribution from trading in the FTSE 100 and FTSE 250 stocks that were suspended on Friday. Cash equities will still be the disproportionate driver of the LSE’s corporate reputation. Failures are highly visible. The business requires disproportionate focus.

A week ago, large parts of the U.K. – including elements of the London transport commuter network – were hit by a power cut. Memories of that are already fading. People tend to forget about temporary outages so long as they don’t repeat. But Schwimmer shouldn’t waste this opportunity to channel his gaze inwardly.

To contact the author of this story: Chris Hughes at chughes89@bloomberg.net

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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