UUÂãÁÄÖ±²¥

Microsoft’s recent move to acquire a 4% stake of the London Stock Exchange Group (LSEG) signals a major turning point for the relationship between ‘Big Tech' and the financial markets in the United Kingdom. It is the first of its kind in the UK, following similar deals that have been struck between Google and CME, and Amazon and Nasdaq in the United States. Microsoft the December deal will generate around £4.12bn ($5bn) in revenue over the next 10 years. Microsoft’s underlying motivation for the equity stake is to harvest as much data as possible, while LSEG aims to transition and streamline its entire processing powers onto Microsoft’s cloud.

LSEG has been steadily growing in gravitas – and challenging Bloomberg’s monopoly on financial data analytics- since its £22.27bn ($27bn) acquisition of Reinitiv in 2019. This was a significant development for LSEG that changed the group from an exchange into a data powerhouse. Now, the data and analytics segment of LSEG holds that covers 99% of the world’s market capitalisation. In addition, LSEG data coverage includes risk intelligence, news, pricing and market, commodities, and economic analysis. In short, LSEG has an invaluable wealth of information on the financial markets of the world that is very appealing to Microsoft’s data analytic prospects.

David Schwimmer, CEO of the London Stock Exchange Group :

’We are delighted to welcome Microsoft as a shareholder. We believe our partnership with Microsoft will transform the way our customers discover, analyse, and trade securities around the world, and create substantial value over time. We look forward to delivering on that potential… This strategic partnership is a significant milestone on LSEG’s journey towards becoming the leading global financial markets infrastructure and data business and will transform the experience for our customers.’

The Bank for International Settlements (BIS) has expressed over the increasing prominence of Big Tech in the global markets. BSI found that the trend towards digitalisation in the financial world has been greatly advantageous for technology giants, but also recognises that a reliance by financial institutions on these giants puts the industry into a precarious position. BIS’s report ‘Big Tech interdependencies – a key policy blind spot’ finds that:

‘The provision of these services [public cloud and data analytics] is highly concentrated, with only a few Big Tech companies dominating the market. As a result of their investment in cutting-edge technology, this dependence is likely to increase going forward. This will exacerbate operational and concentration risks as well as the systemic vulnerabilities that may arise if Big Techs experience significant disruptions. These disruptions may be amplified by regional Big Techs and could have a broader impact on the global economy.’

While the Financial Conduct Authority does have for UK based companies that outsource to the cloud, concerns remain about the impact foreign technology conglomerates are having on domestic trading. One worst case scenario stipulates that Big Tech could replace or replicate financial exchanges. Another is that exchanges are putting all their proverbial eggs in one Big Tech-basket. The whole financial system could be one system error, bankruptcy, or cyber-attack away from total collapse. As identified in BSI report:

’This dependency [on the cloud] is forming single points of failure, and hence creating new forms of concentration risk at the technology services level... a disruption in one of these Big Techs could have systemic implications for the financial system.’ 

Market Tracker will continue to monitor developments in this space.