London Stock Exchange Group plc

David Warren - CFO Xavier Rolet - CEO

Daniel Garrod - Barclays Capital Peter Lenardos - RBC Capital Markets Richard Perrott - Autonomous Research Bruce Hamilton - Morgan Stanley Arnaud Giblat - UBS

Well good morning, everyone. Thank you for joining us today.

And first let me just apologize for this head cold, I do sound better today than I did yesterday but none of you will really be able to make that comparison other than me. So let me set out the agenda for the next few minutes.

First, an overview of the financial results for the period, which means I will focus on the 12 months to the end of December 2014. I'll give some detail on what has driven performance with comparison with the prior calendar year.

Hopefully, more helpful than a review of just the statutory nine months and after that, Xavier will provide an update on another period of good results and the Group's development. And then, as usual, there will be time at the end to ask questions.

So let me start with the key financial highlights relating to the 12-month period. We delivered another strong financial and operational performance.

Headline revenue increased 32% as we delivered both organically and through acquisitions; 12% organic growth, with increases across each of our main business areas, and a first-time contribution from Russell, to following completion from December 3. Adjusted total income including net treasury income increased 26%.

Against the backdrop of 12% organic growth costs were tightly controlled with just a 5% organic increase in core operating expenses partly reflecting the change to OTC clearing arrangements. Adjusted operating profit increased 16% to £558 million.

We have adjusted last year's adjusted earnings per share for the effect of the bonus factor arising from the rights issue in September. On a like for like basis our adjusted earnings per share grew by 7% to 103.3 pence.

Similarly we have adjusted last year’s dividend per share for the effect of the rights issue. We have also taken account of the shortened reporting period due to the year-end change.

The net result is an increase to the proposed final dividend of 6.5% to 12.8 pence per share. The total DPS of 22.5 pence equates to 75% of a full year dividend.

Next I have just commented on most of the headline numbers on this slide, I will cover the performance by segments over the next few minutes as well as provide more detail on operating expenses. Below the operating profit line there are a couple of points to highlight.

First non-recurring items and amortization rose £211 million the increase mainly reflects the Russell transaction cost and the full run rate amortization of LCH compared with only eight months in 2013. Second the group's effective tax rate was 25.6% slightly lower than the 27.1% for the prior year this reflects the deduction in the UK statutory corporation tax rate and a slight change in the taxable profit mix towards the UK following the LCH.Clearnet transaction.

And finally FX movements do have -- continue to have an effect. As you can see the sensitivity to currency changes given at the bottom of this slide a €0.10 would have changed adjusted operating profit by circa £26 million.

Next slide summarizes the main changes in income compared with 2013 calendar year. The key highlight is the organic increase in revenues of a £109 million, it also highlights the contribution from acquisitions during the year which totaled £241 million of which a £138 million represents four extras months of LCH and £90 million reflects the contribution from Russell in December 2014.

Let me now quickly run through the business performance by segment. On Slide 7, capital markets beginning with the primary markets component the capital market which has increase revenues by 15%.

Annual fee income rose 10% mainly reflecting an increase in market capitalizations of companies on our markets together with tariff increases. Admission fee revenue increased 20% following aggregate 30% rise in the number of new issues on our markets and a 41% growth in the new money raised in new and further equity issuance.

We have seen a good flow of IPOs a seven year high and new issue activity was 219 new companies joining our markets. Looking ahead the pipeline remains encouraging with 12 IPOs so far in 2015 a 20% increase on the same time last year.

Turning next to secondary markets where revenue increased to 12%. UK and Turquoise equities trading revenue increased 11% in total reflecting a 15% increase in UK value traded and a 42% increase in ADV for Turquoise.

In Italy revenue at constant currency increased 12% with the number of trades rising 16%. Retails and fixed income trading were also strong with 20% headline growth reflecting inclusion of EuroTLX contributing £11 million, MTS cash markets increasing 32% on an ADV basis and MTS repo value trading rising 3%.

Derivative revenues remained unchanged overall with good growth at item offset by falls in Russian IOB derivatives in London. The next slide to our Italian post trade services, which saw a 3% increase in revenue at constant currency but an overall reduction in income of 14% with the inclusion of NTI which declined as expected as a result of changes in investment policy and lower yields on investments.

Clearing revenues excluding NTI were 1% higher at constant currency reflecting improvement in Italian cash equities and fixed income volumes cleared. Settlement revenues also reflect increased trading levels with revenues rising 9% at constant currency.

And in Monte Titoli custody business revenues rose 2% as assets under custody increased 2% to €3.35 trillion. To the next slide now to LCH which contributed £389 million for the year.

This is a strong performance reflecting a number of changes. OTC revenue rose 34% on a like-for-like basis principally reflecting the growth of SwapClear as the number of clearing members grew year-on-year from a 103 to 114.

The level of notional clearing also rose up 26% and revenue growth is also attributable to the change in OTC arrangements. We have booked £59 million of increased revenues together with a greater share of cost with the net effect for the year being £21 million gain.

In listed product clearing like-for-like revenues were 8% higher with volume growth in derivatives, fixed income and equities. Commodities clearing had a strong period with revenue of £37.5 million but as you know these lines ceased in September with the migration of the LME business.

Average cash collateral of LCH increased 20% to €47 billion. However, NTI is 13% lower on a like-for-like basis with the reduction related to the decline in yield on investments and a change to the NTI arrangements in repo clearing.

As for CCNG we expect pressure on NTI will remain due to the current low rate environment. Let's turn next to Slide 11, information services, which grew revenues by a headline of 10%, FTSE delivered strong growth another double digit improvement with revenue up 14%.

ETF, assets under management increased 16% and continued development of FTSE China indices saw AUM grow to $24 billion. We also saw the first time contribution of Russell indices, which delivered £10 million since the completion in early December.

Real time data revenues declined 11% reflecting a reduction in professional data users in the UK on the other hand our other information businesses have continue to perform well with a 14% increase in revenue. The drivers of growth here are SEDOL and UnaVista.

Now to Slide 12, our technology services where revenues increased 6% or 11% at constant currency with growth from Millennium and also other technology services. MillenniumIT delivered £30 million of third-party revenue an increase of 8% at constant currency, contracts one include Aequitas, a new exchange in Canada and the Casablanca Stock Exchange.

Let's now look for a moment on Slide 13 at Russell investment management. As you know we completed our comprehensive review of the strategic fit of this business with the group and we've commenced a sale process but for the large part of this year we will have a contribution from the IM business.

This is a high quality operation, a great franchise and well established as a solution space advisory and investment management business. We will continue to support its development during our stewardship.

We will book revenues on a gross basis and take the sub-advisory fees onto our cost line. Since the acquisition in December, investment management contributed nearly £18 million in line with the monthly run rate over the last six months.

Assets under management grew during 2014 standing at $273 billion at year-end. So we will keep you up to date with developments as appropriate.

Moving now to Slide 14, LCH, you just seen that LCH has performed well, in addition to good top line results we've achieved €45 million of saves in 2014 this means that we successfully reached the increased cost synergy targets that we announced last May up from €23 million to €60 million. So we will have achieved the full run rate saves in 2015.

The savings have come from a mix of efficiencies but mainly focused on headcount reduction as well as properties and other gains. And as we've said before this is not the end work on the next phase of efficiencies is already underway, I can't quantify the amount today but I do expect that we will be able to provide information when we give an update on LCH in May.

This is a multiyear change process, we're driving cost efficiencies but we're also investing for growth client clearing, for FX clearing and more. So we've harnessed the operational leverage overtime, we're developing a critical infrastructure -- critical clearing infrastructure with global financial markets.

Turning now to Slide 15, on our expense base I have highlighted the main changes over last year. As we've done before we've reset last year to reflect currency change and to establish say an equivalent base for comparison of results.

The main increase you see here is the £177 million of cost mainly related to a full year of LCH plus cost from FTSE TMX, the EuroTLX and of course Russell indices and the investment management although just for a short part in December. With these normal adjustments you can see our organic cost increase was just £28 million this comprises growth in cost of sales mostly at FTSE and within Turquoise.

We also have the higher cost share arising from the new OTC arrangements at LCH which added £38 million although as I have said these were more than offset by revenue gains. Now to Slide 16, the cash flow.

Cash generation continued to be strong with £252 million generated after usual tax and interest payments and also taking account of current period investments. Capital investment of £84 million reflects a lot of activity including ongoing CapEx at LCH.

CapEx levels in the year ahead are expected to run at similar levels as we continue to integrate operations and develop new services. Free cash flow per share before dividend amounted 79.5 pence per share.

To Slide 17, at the year-end the group had operating net debt of £1.6 billion. At the interim till November we've reported net debt of just £32 million being a function of the receipt of the rights issue proceeds.

The increase as at the end of December clearly reflects payments for the completion of the Russell acquisition. The net debt expressing after setting aside about a £1 billion of cash and cash equivalents to meet regulatory, clearing and commercial requirements within the LCG businesses operational cash at Russell and Russell IM and the continued assumption for the time of being no surplus cash at LCH.

So in terms of leverage our pro-forma adjusted net debt to EBITDA ratio at the end of December stood at 2.1 times. This is lower than anticipated following the Russell completion due in part to good cash flow generation at the end of the year and the phasing dividend and bond coupons that went into January.

While we're well above our self imposed two times ideal maximum now we remain confident that we will back in range within the 12 months from the completion of Russell. Our borrowings are detailed on the slide the group has undrawn committed credit lines totaling £500 million with maturities extending to July 2018.

The group's long-term credit ratings are also shown on this slide Moody’s Baa2 rating remains unchanged while S&P stepped to BBB+ following application of global criteria regarding the sovereign debt exposure in our case relating to Italy. And now to Slide 15 let me finish with some thoughts on capital allocation.

There are a number of considerations and priorities that we regularly take into account as part of our strategic review of financial resources. I have just given an update on our leverage position we've successfully managed our net debt to EBITDA within a range of one to two times over the past seven years.

While we have stepped out aside of this for the right reasons at this time the right reasons being the acquisition of Russell. Our first priority is then to ensure that we return back to our target range and ensure that our debt structure is appropriate.

Investment in growth opportunities is a clear ongoing focus -- again I have just indicated that we expect the current level of CapEx to be maintained as we develop organically for growth in a number of areas. In addition as ever we remain flexible if the right inorganic opportunities arise.

We remain committed to a sustainable progressive dividend policy we've stepped up the final payment on a pro-rata basis and we'll continue to move the dividend forward as the group develops and grows. Our track record of dividend increase is strong and dividends will continue to be central to our discussions on use of cash.

And finally, as we generate strong cash flow, should we get to a position of sustained surplus cash after the about considerations and taking account of regulatory cash requirements than naturally will fully evaluate the normal additional distribution options. As ever the board will continue to act in a shareholder friendly fashion delivering returns for our investors as we grow again, great to be with you this morning.

At this point I'll hand it over to Xavier.

Thank you very much David, we won't shake hands if you feel little sniffle we'll have a little bit of a soft road as you workout I mean I'm getting into. Thank you, David.

Just going around the building, next time we'll do it -- conference. Thank you very much David for these numbers and this impressive presentation.

As you can see the London Stock Exchange Group has enjoyed another very strong year. We set out our strategy for those of you who followed us at the time back at our Investor Day in 2009, number of years ago.

The principal -- the strategy was to continue to deliver attractive returns in growth diversifying the group both by asset class as you recall our three stated areas, capital formation, free trade risk management, another form of industries and benchmark and post trade services essentially balance sheet risk management services. The focus was always and I think through the history of the stock exchange that we'll continue to be a leading international market infrastructure group.

And we will continue to deliver on that strategy. The group is now much larger, more diverse, more relevant international business for the broad sweets of markets, products and services.

This year we have in particular strengthen our presence in the all important in fact the world's largest financial market the United States, to over 50% of all financial assets are held there. Our unique and firm commitment to open access I'm hoping for a few questions on this perhaps afterwards but this focus continues to differentiate us from the rest of the industry.

We're aware of that and across the three cornerstones of our business, capital formation, intellectual property, balance sheet and risk management we will continue to apply this principal so it's not just about clearing, it's also about IP indices benchmark, those of you who have seen for example our announcement for the CBOE earlier this week related we apply this principal to indices as well. We now have a full suite of complementary products and services across this suite core interconnected, interlinked areas.

We're also increasingly a global franchise. So the acquisition of Russell, we're now the number two tied with MSCI global index provider.

We straddle the world of exchange traded derivatives, asset management but also already fixed income and equities with leading domestic franchise in China, in Malaysia, in Singapore, in many other emerging markets of course in Europe and now in the United States, we feel that this today is the most balanced index property across asset management and exchange traded derivatives on a global scale. In post trade, through LCH.Clearnet, which offers its services in Asia, clearly in Europe with a balanced position between the euro zone and UK and remains the lead clearing interest rate swaps and a growing peer in North America.

Our global listings business as you heard with 219 new listings last year continues to make strides but not only internationally but also with the all-important developments of new technology franchise right here in the UK. It has continued strong growth in fact uninterrupted growth in the aimed market and in the high growth start up, tech, biotech, software, engineering sector.

It goes without saying that we continue to change. Our realized for U.S.

analyst that also means changes in new model integration of new businesses, of new geographies but we remain fairly committed to delivery of the strategy against the backdrop of an industry that remains dynamic and in landscape that continues to evolve. We're not done with the impact of regulatory changes in our industry client clearing just coming to Europe in 2016 in fact probably in second half of this year we'll start to see a migration of some of the buy side activity in the OTC area towards clearing houses.

There is further opportunities in ForEx in credit products, we're just at the outset of major re-redrawing and change of the regulatory environment as it impacts the infrastructure company. Switching over to Slide 21, we have been careful.

Of course we've grown inorganically, but careful to ensure that to proper integration not only in terms of operation but also in terms of marketing and product integration and with further innovation Further innovation and this is a core of what we've been doing post the acquisition of many of these companies. We've been careful to focus on organic as well as inorganic growth.

I know sometimes M&A is criticized for being seeking growth for its own sake without the proper integration and a proper leverage being applied to the integration of these companies. This demonstrates the diversification strategy since 2009, with the group now producing a broad balance of revenues across all our business divisions.

As David mentioned earlier we're seeing organic growth across all divisions, the adjusted total income reaching almost £1.4 billion for the year. Slide 22 projects our geographical distribution.

Post completion of the acquisition of Frank Russell Company around as I mentioned earlier a third of our income is now U.S dollar denominated. And what we look forward in the coming months and years as euro starts recovering is I think the dual benefit of a strengthening euro and a strengthening dollar I guess one of the currencies in the middle perhaps will have to weaken somewhat but that will not hurt our shareholders.

The U.S is still and will likely continue to be for some time the healthiest, largest financial services market in the world -- we now have a growing and strong stake in it. Besides focused geographic graphic and product makeup the London Stock Exchange will continue to evolve.

Over the next few slides we will highlight some of the recent activities that demonstrate that growth and diversification. Moving over to Slide 23, FTSE we made that acquisition a few years ago.

This had not been the focus perhaps of the industry at the time certainly not a focus of ours and I remember the questions when we made the acquisition. And if you look at the years following the acquisition we have continued strong existing track record of growth within FTSE.

This business even at standalone -- as a standalone business without the addition of Russell remains an impressive business and continues to demonstrate strong growth delivering 16% CAGR revenue growth since 2011. It's now fully integrated within the group and we have also now delivered on our stated revenue synergy targets not just cost synergies target as announced at the time of the deal.

Moving over to Slide 24, following the successful integration of FTSE within the group our global index franchise has been fully strengthened following the completion of the acquisition of Frank Russell Company. As we highlight on this slide the combination of these two businesses create a global leader, a significant potential to capitalize on the opportunities for growth in areas such as asset investment and smart data strategies.

Keep in mind that with about little bit over $5 trillion of equity assets on the benchmark for Russell and little bit over 4 trillion for FTSE, FTSE has a $300 million top-line, Russell a $170 million top-line. Since completion in early December we've already been working hard to integrate the businesses across all areas, the global sales teams in particular working very closely together.

As the recent signature of the contract with the CBOE exemplifies, we're extremely excited about the possibilities for the combined growth of this business. Turning to Slide 25, as I just mentioned this as an example of the opportunities that exist for us in this space and in early demonstration of these possibilities in the combined index business was announced last week with the CBOE news.

This builds on the existing relationship with Russell expanding the opportunity to develop more global options products based on industries such as the FTSE Emerging market and FTSE China series. So it's not just about the signature of the Russell contract but we added on to it opportunities for FTSE contracts on a global scale and eventually also we believe we will be able to bring about opportunities in emerging markets where FTSE has a commanding position.

CBOE is expecting the first two products in the coming months and partnering with such a global leader will provide significant benefits for market participants we believe in the years to come. Going back to LCH.Clearnet as you will see from this slide we continue to make good progress there.

LCH is one of the world's leading multi-asset CCPs and is extremely well positioned to benefit from the continued evolution in the regulatory landscape. Such as I mentioned earlier the introduction of client clearing in Europe which is -- will be upon us in a few months.

For example our colleagues at LCH continue to work with members and their clients to build opportunities across asset class such as ForEx, Repos and equities. One such initiative announced earlier this week but this was quite fundamental to the dynamics of our industry going forward not just in terms of growth or competitive dynamics but other dimension is the launch of a new interest portfolio margining capability.

Given the ability for all our customers to maximize their margin offsets between OTC and listed derivative is indeed a transformational step for the industry. Importantly portfolio margining will be available on an open access basis through any and all regulated venues that list sensible interest rate derivatives which will combine of course with the largest OTC interest rate derivative liquidity pool which lies within SwapClear.

This we believe has the potential to change the nature of the way the global market place operates and it is another example to how we will continue to innovate, working with our customers to prove our greater efficiencies. We are looking to understand their evolving business and their business means.

So the next slide demonstrates how LCH.Clearnet is we believe uniquely positioned. Portfolio margin is imperative but you have the ability to clear across the entire spectrum of interest rate products.

LCH.Clearnet simply is unique. If you look at the distribution along side of the curve of its three listed competitors CME, LIFFE and Eurex, they may have presence without volume or open interest but strength to some of them the short handle curve or at the long handle of curve in fact they try to consolidate to bring that together as we know this was unsuccessful.

SwapClear already offers the entire curve and this is where open access matters. This is why open access is not only a motor of innovation as we move to client clearing as we move to electronic trading in many of these OTC instruments in the next few years.

As LCH thanks to it's open access philosophy and policy, this prepared to offer these services including portfolio margining to all and any properly regulated venues that will offer the products. So not only will these venues, who cannot clear with silos but only clear with LCH, with LCH, we will continue to leverage its SwapClear portfolio to increase the amount of margin connected from a whole range of innovations that are short to come in our market.

It makes sense, it stimulates innovation and it is economically a superior model. It's always better to have more clients than just a single client.

Combined with our open access model this represents we believe a profound opportunity for the group, and it may be the most important development that I will talk about today. Completes with few others but in my mind this is no most important.

Simply speaking we believe LCH.Clearnet has the potential to become the global leader in interest rate portfolio margining, providing customers with far greater regulatory capital efficiencies. Moving to Slide 28, and let's say quick word of that compression, this was the theme we developed last time, this is not gone, this remains a major attractiveness of the SwapClear offering.

It is within the OTC portfolio margin construct, LCH already offers today far-far greater regulatory capital and margin efficiencies to its customer base. I have seen some articles in the press that the actual notional for the first time, notional amount of IRS cleared was coming down, presented as a sort of declining or maturing market.

It's exactly the opposite of that's happening. The underlying amount of notional keeps growing but owing to the power and unique power of the compression service for which by the way SwapClear charges an additional fee not only that increased our market share and increase the notional volume but we provide doing so even greater efficiencies today without even the benefits of portfolio margining across OTC and listed will provided far greater regulatory capital efficiencies to our customers.

Looking over to Slide 29 please, I'd like to take a moment to highlight our offering in fixed income. So, often the [indiscernible] we get questions about Russell, FTSE and LCH, that business is continuing to grow and I think we're right at outset of a huge opportunity whether it's in UK, with a fair and efficient market a review whether it's new regulation in Europe and also in United States you may have seen our recent Bonds.com acquisition which gives us the sale side and the buy side connected platform.

I think there is a huge opportunity in fixed income, treasuries, government as well as of course a corporate. As we shown on this slide, it’s a good example to how the group's diversification is enabling us to provide solution for customers not just on the listing and the trading services we offer but via platforms such as MTS, MOT and of course connected to our clearing services CCNG, LCH.Clearnet including repo clear.

Fixed income as you've seen now for a couple of years in the fast growing business but the listed portion of fixed income remains puny compared to the OTC world, but I cannot tell you exactly when the shift is going to happen we think we're closed. There is a major opportunity for us here, we already have a clearing capabilities.

We already have the repo clearing capabilities and the margin pool and we have the platforms MOT, ORB, MTS, Bonds.com in U.S. When that shift happens the opportunity is going to be substantial.

We also of course operates in the area of fixed income in the index world in fact today the only major global index company operating in both fixed income and equities while it's only about a trillion and a half today of fixed income assets and the benchmark owing to the joint venture which we signed with TMX so called FTSE-TMX global debt capital markets joint venture. We have a strong footing in that area already, recently integrated the NTS indices into FTSE and believe that And believe that this will be a going forward a significant opportunity for further growth.

Switching over to Slide 30, please, outlook before David and I take any questions you may have I would like to take a moment to summarize key points from today’s result. We have been our journey for few years now I believe we're continuing to deliver on that strategy.

Strong financial performance with a combination of organic and inorganic growth, we've expanded our global footprint and further strengthened information services offering with the recent acquisition of Russell. As I have said work is already underway to ensure that we realize the strong benefits of this acquisition and to deliver and frankly we will continue to try to exceed any stated synergies be it at cost or revenue as we announced them.

We're in a dynamic industry we're not positioned like the rest of the industry is, look at it as a cheap option. It's not as cheap as it was five years ago but it's still cheap versus the outside.

I believe that we're very well placed to build global leadership positions across three stated areas - capital formation, intellect property and risk and balance sheet management the three pillar indeed of our business. The role of the global open access capital market infrastructure business has never been more relevant and I think LCG itself is increasingly relevant in its industry debate.

We remain focused on expansion, growth and also innovation. Regulation will continue to shape our landscape we remain alert, poised well position to take advantage of these changes.

Finally as David already highlighted we remain fully committed to delivering value for our shareholders as well as our clients through enhanced services and enhanced efficiencies. I would like to thank you for your attention or perhaps I should say your patience with me.

And David and I will now take your questions. Thank you very much.

Daniel Garrod, Barclays, a couple of questions. First, on SwapClear, it looks like a record quarter of revenues in this Q4 at 29 million.

You obviously outlined you've had some increase in the number of SwapClear members, but you're also rolling out more compression services. So I wonder if you could give any indication of really what sort of drive -- the relative importance of that.

Is it still members really and, hence, could there be a further step up when we get the mandatory clearing in the second half of the year? Or is compression contribution coming more and more important in that as well?

And the second question, I will ask a question on open access, but in terms of the portfolio margining, it would seem the greatest benefit is being able to margin across the curve between exchange traded and OTC. So to what extent is the biggest listed pools on LIFFE and on Eurex can restrict access dated to 2019 under the existing MiFID rules, does that that set the timeline for you for this to start contributing, or are you confident you can get some meaningful contribution ahead of that?

Thank you.

Shall I have a go at it?

Yes sure.

On the compression service it's here and it's very powerful which is the reason why contrary I think too many expectations, LCH.Clearnet is what we have specifically have continued to in fact grow their market share in the United States against the domestic incumbent. The group in our capital markets has added 50 new customers in Europe and over 500 new buy side clients direct client relationships.

Don't forget that today the group as a whole has direct client relationships with 1,500 buy side companies around the world, so without intermediaries, disintermediation is not our strategy I say very quickly so very clearly so there will be no misunderstanding. But buy side as well as sell side our core client constituencies spent some client clearing in the U.S, as we mentioned client clearing which was coming here and of course the index for the largest buy side institutions our direct clients of Russell's will see and the other services in the information services area.

So compression has had a massive impact. We didn't invent compression so of course we know there would be a benefit but we didn't invent it out of thin air.

Why have we been able to invent this or innovate in this space like we have innovated in fixed income, like we have innovated in capital raising -- we're elite, in agricultural or electricity trading platform if you look at the last four or five years all the new products that we have launched they have always been done on the back of the input from our customers. And the uniqueness of the business model is not just open access it's the fact that we share the strategy with our customers that sit on our various company operating board and in cases where the business is particularly strategic we're prepared to share equity with them.

The advantage is not just an economic one it is that when a particular challenge or a particular opportunity comes up we're able to discuss it directly with our customers. Benefit from their input in terms of product design which is why the LCH.Clearnet compression product today is unique, so simply doesn't exist anywhere else.

The question you asked also the other element is what about the listed world. And listed I think across Of this discussion, this is where the industry is today.

There are three listed silos, they may have sector expertise on the short hand and the long hand, they maybe more dominant in U.S. or in Eurozone or EURIBOR by the way we do not believe that survey based indices like EURIBOR or LIBOR have the long term future.

This is not a six months development, this is a medium to long term it's not just there is no future for this benchmark. But this three listed franchise derive circa two-thirds to three quarters of their revenues, you should put aside Deutsche Borse which has a very substantial settlement business which is highly cash generative particularly fixed income.

If you look at their capital markets and clearing engines, 60% to 75% of their revenues tends from a handful not a products or product classes of contracts take out the treasuries and the SMP out of CME take out Brent and EURIBOR out of -- , take out -- euro stocks out of Eurex, there is very little lift. Owing to the bundled pricing schedule so there is incredible concentration of revenue underpin by small number of products and the whole point that open access is it's now part of primary European legislation.

So the regulation that this is going to come out which is being discussed as part of this year has to by law reflect the underlying principal -- as you pointed out there is an option for exchanges and feel that 2016 is too soon for them to be complied to opt out for an additional 30 month hence putting it out let's take to 2019. But there is a hook, not a hook that's been I think advertised by the same silo is if you opt out for the 30 month of the open access position you have to remain a silo so you cannot decide I'm going to remain the silo in my listed products but I'm going to be open access on my OTC i.e.

– start offering services to do new OTFs and SEFs and innovations and other platforms who would seek basically a clearing platform, if you are going to opt out for the 13 months you cannot clear for anybody else, and this is where we think lies the opportunity. You may have seen in the context of our portfolio margining that NASDAQ through NLX announced they would be a customer.

We also made that announcement this morning, we announcements for almost go incidental. We expect many more platforms registered exchanges frankly will clear tomorrow for ICE, Deutsche Borse or CME if they wanted to tier with us.

We will license our indices to them if this is a wish but all these new platforms electronic and ForEx in credit in IRS, when they launch on the back of new regulations, if you opt out for the 30 month they cannot clear with that. So effectively we think great, bring it on.

They're leaving the market to us for another 30 months so we can continue to build up the flow of incoming listed products that will not only complement the strength of the appeal of the SwapClear which is why that debated so I'd say intense between us and the rest of the industry and that innovation is not something we've invented out of thin air. Those of you who watched the MiFID debate will recall that we provided documentary support, written letters from the sell side, from the buy side and from the corporate supporting our open access position.

So this is not just an LSE invention, this was done with the customers and not just the sell side but again the buy side and the corporate. This is a mortal threat to the bundled fee schedule.

Open access by the way is not the same thing as interoperability. We know interoperability because we're the only exchange in the world that for a number of years now has been interoperable for those equities and fixed income.

So we know exactly how it works, for cash instruments delta 1 products, two-and three-way interoperability, it's not always easy if it kind of works, doesn't work for derivatives for non-linear products. So let's not confuse open access and interoperability.

And I'd just add certainly one point on the compression side, I think it is and I think a lot of you know this but it is really the features, it's the range of just how quickly LCH has innovated this product and the range of features it offers. Clients can compress with themselves, which is having huge demand, they can compress by lateral, they can compress multilaterally this blended rate I mean it is really the it has been within LCH has been the focus on what the clients want what the customers want and it's been embedding this feature rich compression services engine inside the clearings and so I mean for that reason we're very bullish on the continued contribution from this.

So then Peter and then gentlemen the in the back or two gentlemen, see you're, yes please you, yes, we are looking to the right, you're looking to the left he is coming.

It’s a general confusion there as usual. Thanks so much, just again two questions.

Firstly, if I could follow up on the whole portfolio margining issue, you are already clearing for NLX. My understanding there is that open interest has been not really building, you think this is the lever to enable interest to build in NLX?

And secondly on fixed income indices, you said you've got £1.5 trillion under advise is that indexation or generally being benchmarked against? And what do you think is critical mass there and what you're plans for get into critical mass fixed index, as there are a lot of demand there now I think?

Yes I think for NLX I can't comment on their product strategy. They are a customer of the group and as any customer we treat them very well and we want them to succeed but we don't discuss their commercial strategy, their product.

What we're offering is a portfolio margining with the SwapClear margin pool and I cannot imagine that that's going to hurt their business plan or their business model. But other than that I would say any questions around NLX product I would suggest you direct them to NLX.

Around the -- and we announced this morning our own signature of added terms between SwapClear and LSE Group from a strategy in this space. But we thought it was fair that the customer would go first before we did so we put a day between the two announcements.

Around fixed income indices a 1.5 trillion in fixed income is kind of neither here or there but it's a strong footprint and it's in North America. Fixed income businesses are substantially different from equity businesses.

You need to access to live trading data which of course does not confirm with the model we're aware of in terms of equities lot of the fixed income businesses and OTC market so you need have sourced trading data it's obviously less transparent than equity businesses. But you also need the risk management systems and they are considerably different from equity.

So for us acquiring 75% of the joint venture we know have with TMX effectively managing the Canadian fixed income franchise and advocating to that the European MTS index franchise was also a way over the last couple of years to build our expertise in this space to build critical mass. I think the business in fixed income indices is going to change considerably, they could be transaction but even if they aren't I think the model whereby in the past a number of banks had themselves and there is a range of banks who had themselves managed indices and distributed them it's going to move towards a more neutral centralized infrastructure type environment.

That said when we look at the market. We think there are opportunities in Asia, as well as in Europe.

Obviously this is where we launch MTS business. But we know think that we have a critical mass and sufficient expertise in this space to look potentially at organic innovation.

If some of the very large franchises end up changing owing to customer demand and if their long-term future as they currently operate it, is not sustainable we would see some competitive opportunities for us to offer new products again together with clients particularly buy side clients. So I think that industry is going to take several years to settle down.

We're a player clearly not a critical mass player yet but with a lot of expertise and the fairly unique feature is we already operate today in North America and in Europe, Asia. We believe is the next frontier, Peter, sorry.

Richard Perrott from Autonomous, I would just like to go back on to portfolio management. And the question I had was that if I look in the U.S your major competitor there they have offered portfolio margining for some time, they got to a very large listed fixed income bearing pool and they haven't had much success at Swaps?

That's exactly right and neither have there I would say mere image competitor in Europe on Eurozone they have also launched this products and they have not gone anywhere I don't lament that fact.

So the question I had was if you're offering the same service, what gives you more confidence that the mirror won't apply? Why do you think the LCH were having a very large swap clearing pool should be able to pull out on Swap up listed clearing activity?

Obviously please don't make my offended comment as an arrogant or pompous remark. This when you get into the granular detail of portfolio margin it's incredibly complicated it's not a simple thing.

You got to look at customer segregation which is why the compression service has been so effective because it's here now and that provides huge, huge relief. But if since you are asking why I don't think ICE, Deutsche Borse and CME because it's not just CME have so far been successful.

I would attribute it to several things, first was the point I made earlier they do not cover the curve in a fashion that effectively SwapClear does. So the benefit and the appeal to customers of and portfolio margining between a pool of OTC derivative which is either non-existing or small and a pool of listed derivatives which cover only a portion of the curve that's not efficient.

And it's maybe at the margin a little bit attractive but not that much certainly not to compare to the compression services. And we knew they were going to offer that so we focus on compression -- it is here now and is very appealing.

And a next stage once a lot of these compression service become built in the system and we offered them in April of last year that's when we really kicked it off and look at the market share of LCH and interest rate clearing in the U.S. as client clear was introduced and look at March, April and then May, June is where the market share started growing.

So what we think going forward, is that we hope and think and certainly we'll work hard to develop success is not only because we think we cover the whole curve but we've a long duplicity of potential customers as I said if ICE today applies for customer status, they're welcome, they can come back actually to LCH, they used to be there. We are open access but if you look at it theoretically, it's easy to see that given we've the whole curve, our service will fit almost anyone, whether they're looking into short end, the middle end and the long end of the curve so the attractiveness across the whole curve of that portfolio margin is technically far superior to that of a sealed silo particularly if they opt out for the extra 30 months.

So we have a window of let's say 18 months to potentially 48 to 50 months where we can continue to build the flows going into the LCH clearing engine and increase the liquidity further. That means that some participants may not be successful who innovate, others will and that cements, effectively the creation of an alternative futures engine.

I also think there are other factors, we don't over charge for our services you can license our indices, trade with someone else, clear with another one and settle elsewhere. If you want to clear with us you don't have to settle with us, you don't have to trade with us.

Clients like that it's a choice it's what represents the modern internet economy. There are no silos anymore, there are no silos in the pharmaceutical industry there are no silos in the telecom industries.

There are no silos elsewhere. So we think the model not only is economically more attractive but is more in keeping with the fact that financial services professionals where the buy side and sell side whether they're facing huge pressure themselves on cost regulatory capital, they want efficiency.

So we don't have $3 billion of revenue of which 75% comes from three products. We are close there but we have a lots of products, we bring out keep our cost low and we seek to make money through maximization of the flows even clearing the trading, going back sort of coming in and thirdly and I'll conclude there because -- probably desperate for me to conclude at this stage I think our business model is naturally client friendly.

We don't lobby against our customers, we don't tell them these are terms take it or leave it. The nature of the silo is the nature of the monopolies.

The reason that we know that is because we've been there in the past and if you adjust to that and if you provide a different model if you seek to innovate your client, keep your cost down, ask for a fair return, this is where we did the swap clear but don't push the envelope too far I think you may also and this helps and this happens in commercial terms, benefits from the capital of I'd say sympathy from the client base. So let me just prefer to deal with us again I don't want to be arrogant about this and I certainly do not want to be complacent but our business model is naturally friendlier to our customer base and when they have to make their choice but perhaps in some instances they might give us a crack first at least that's what we're hoping and we'll continue to work very hard to ensure that this continues.

Hi, it's Arnaud Giblat from UBS, two questions please. I was wondering net interest income if you should give us a bit of a color to how your portfolio is positioned?

What is the best market index we should be looking at, is it EURIBOR, LIBOR, EONIA what sort of spread duration any color you can give there would be helpful on a going forward basis. And secondly, in terms of your comments on distribution of capital, you highlighted that it might be some cash that might be freed up from changes in regulatory capital requirements, could you perhaps a bit more color on that?

And secondly how you're thinking about distributing cash versus retaining it for further acquisition opportunities, should we be reading here that basically you have you don't -- any large scales of acquisitions anymore?

Well, on the first point, as you know under EMIR, the portfolio the margins need to be invested in really can be restricted only 5% cash that could 95% collateralize so I think the way you think about this is essentially a basket of short duration governments and try to obviously clearing houses as a rule, generally try to maximize yield within those fairly tight restrictions so it's going to be a blend of basic European governments within the European clearing houses. So that's really -- directionally it's hard to say that's going to change obviously so I think that's the way you have to think about it.

With respect to that capital question allocation question I don't think I said anything about changing regulatory, if I did say that, that's if you heard that that's not when it should occur, we certainly always are looking at regulatory requirements and as you know they can and will go up in time, they change over time. I think the focus was more around the message of our focuses would be first on the balance sheet.

It would be second on investment in growth, it will also be in terms of maintaining our dividend policy which I think we've been very strong and committed on in the past. And as we said with the rights issue and as I am saying it today the Board is very committee to that policy going forward.

So I think that continues to be our principal way of returning the cash to our shareholders on a regular basis, so we continue to look at that. With respect to what we would do beyond that, it's a fluid -- it's very fluid it's very hard for me to say at this point in time as you can imagine.

But I think the point I was making is that we're looking at a period of time where we see we're going to have large amounts of cash on our balance sheet and we've looked that could be over a sustained period of time then I think we will look for ways to return that.

Peter you have been very patient.

Thank you very much this is Peter Lenardos from RBC, I just have two questions, please. First of all I was hoping if you could give us an update on globeSettle and how that is progressing.

And the second one I was hoping if you could give us a comment on the current discussions in the market regarding increased capital requirements in CCPs specifically with regards to skin in the game? Thanks.

Pretty good, thank you I will start with the last one. We already have skin in the game and that is set by legislation, so it's not going to change and it's being signed off by EDA and ICMA.

So this new prospect of the skin in the game related aspect of capital requirements for clearing house is changing in the short, over the medium run. I think the part of that skin in the game is about the U.S.

and the big debate of course today is mutual recognition which is negotiated between the U.S. and Europe as regards to clearing house.

U.S. clearing houses do not have skin in the game, so from that standpoint there is a debate which is part of the reluctance I would say without quoting any one of authorities on this side to basically agree that the recognition should be mutual and take it for granted.

So I think if anything in regard to your about skin in the game the vulnerability is in U.S. but it isn't here that's been set by legislation it's not going to change.

The other part of your question about globeSettle it's going very well, thank you very much as we announced we got the license in June of this year in Milan with Monte Titoli, Mario Draghi will kick off, officially launch target to securities which is why globeSettle was designed. So he will launch it with us as we are the first a major CSD in Europe which has been a licensed for TARGET2-Securities it was that what T2S is if you want the equivalent for the settlement business toward the euro payment system was for cash transactions and cash transfers.

It's a creation of a unique, single standard and that will make a massive contribution towards the creation of a single market, single financial market in Europe, a single standard for settlement and ultimately for access to custodies to CSDs in the various jurisdiction. If you today look at the fee schedule of CSDs in Europe the cheapest is Monte Titoli, the others are more expensive, the ratio is actually 1 to 6, 1 to 7 but what is prohibitively expensive today in Europe is the cross border settlement.

You are French institution and you do a German fixed income trade and you have to go cross border and that’s where the ratio versus the U.S is so punitive. So by harmonizing the standards T2S -- it's a good question because not that many people are focused on that, we've tried to talk a bit about, we actually think this is the next frontier.

Customers in Europe are leaving a huge amount of money on the table when the go cross borders, about €800 trillion a year of settled instructions worth underlying notional value -- €800 trillion it's not a small market. So it's going to put huge pressure on those settlement entities which derive a lot of their revenues because on average the ratio of domestic pricing versus cross border pricing on average in Europe is 1 to 5.

So those CSDs charge five times more for a cross border deal and that's going to disappear. We do not compete with our clients, so we're not in the payment system globeSettle was designed backed by Monte Titoli technology, Monte Titoli processes but incorporated in Luxemburg to offer from the mean of T2S a pan-Eurozone wide settlement environment which a number of our customers have already signed up to and more are coming.

Again it's open access, we will settle for exchanges as well as any other customers whether buy side or sell side. But the development is going well, the licenses have been received and we're ready to kick it off in June at mostly in Monte Titoli in Italy when Monte Titoli, Mario Draghi rings the bell.

Thank you, Peter.

Thanks, Bruce Hamilton from Morgan Stanley, a couple of questions. Firstly the liquidity in the corporate bond market is clearly a concern for the buy side.

Is that an area that you and there is no electronic platform yet that has really found the secret sauce. Is that an area of opportunity for you or the collective standardization in the market is just going to make it very, very difficult.

And then the second question just going back to sort of uses capital if we think about non-organic which -- where are the areas where you still feel like you have got many gaps but the index market is is still quite fragmented, are there assets in post trade, where do you think the opportunities lie if they lie anywhere in the non-organic space.

Bruce, thank you. The liquidity in the corporate bond market, it's very good question and I can tell you not just institutions are worried about it but I could say regulators also worried about it and it's not the corporate bond markets, U.S.

treasury market those of you watching U.S. treasury market remember what happen last year on October 15, 16 when the largest deepest pool of sovereign liquidity gapped the way it did I had not seen it gapped that way and we weren't in the middle of the major crisis.

Why is that happened? Well, there is simple reason, there is so much pressure put on the backs so much pressure in terms of compliance, capital ratios, return, expenses that they're pooling money out of their market making activities.

And this is a feature that we believe we understand well here at the London Stock Exchange but it's not always well understood, people think or talk about liquidity. Liquidity in some market is continuous order driven, in other markets it is underpinned and depend on market making, it's discontinuous at the time of the pricing request for quote you can have huge liquidity and in between very little.

And I think the partial or in some cases brutal retrenchment owing to the pressures I referred to earlier has meant that the broker dealer community, the banking community sees and is less willing and less able just simply technically to commit that liquidity when it is needed i.e. one year in a reversal action mode when you have to put up a bit when everybody is selling.

That means today that markets that have been taken as deeply liquid on an ongoing basis can go through real dramatic moments. Now we already do have platforms as I mentioned MTS, BondVision, which is a B2C platform for sovereign debt, which goes from gilt to all the other European sovereign debt.

And now Bonds.com in U.S. and we have two liquid one is more than the other corporate bond platforms the MOT market which has about 900 issues listed, trades between 1.5 billion to 5 billion a day but we're very large auctions, we've had an auctions as large as €20 billion to €25 billion down on the MOT market in Italy to retail market like the order book for retail bond here in the UK.

So we have the platform but the nature of this market remains in market driven request for quote type market. As I mentioned earlier the efficient fair market review in the UK I think may change this.

I think Europe also is worried about that and also the U.S. So for me it's not if but when we start seeing it could be brutal or it could be phase over time.

The transfer of liquidity from OTC market making driven environment which to a more liquid, transparent and predictable market environment, we've the platforms, as you see MTS has enjoyed a lot of growth in last few years. MTS trades €15 billion to €20 billion a day so it's not enormous but it's not that kind of either a BondVision in fact trades more than that but that's a lot of buy side flow and I think the point about this is going to be when the market shift I can't give you a timeline I just don't know, I think it's pretty close.

Those who have the platforms will be in better positions than those who will react and think, okay, what do we do about this change?

Bruce you had another question on inorganic.

Yes, on the use of capital?

No, on inorganic.

Around indices probably there is -- if I look at the group today, they really isn't a major gap with one exception I refer to it in the past which is the fact that we don't have a big listed futures engine if we had one, the industry would look different and the industry is not done in any case in terms of providing a complete set of profiles should look at CME, business in U.S., question mark in Europe, question mark in Asia, ICE, they've certainly invested here, secured LIFFE, Eurozone not so much. Deutsche Borse in reverse, not so much in U.S., great settlement business, good efficiencies for custody and other collateral management between Asia and Europe, not so much in U.S.

no one has the complete suite of products. So as many industry when you're in that situation and where the pressure is huge in terms of competitive pressure, regulatory capital pressure, compliance and other general regulatory pressures but also opportunities, the industry is first attempted to seek to players to increase their position through organic competitive initiative and if that fails is the inorganic.

So for us, if we look at our business today, we think we're extremely well positioned but the one missing bit that futures engine there's not one for sale, there is nothing available which is why we're going the organic route as we flagged for quite a while through the announcement that we made around portfolio margins and there will be further announcement in due course in this space. As regards the index business specifically I think again I don't want to be I don't to sound complacent to arrogant about it but if you look at the way we straddle both fixed income and equities and the way we derive about 60% from asset management, 40% from exchange traded derivative, a big domestic franchises now in China, a small domestic franchise in Japan or into Russell; a big Islamic finance franchise in Malaysia, in Singapore where -- if you look at the Singapore Exchange for example there star product in last three years really the only area where they have seen growth has been the A50 which is a FTSE product, FTSE also manages the Straits Times.

So if you look at emerging market and now the Russell's franchise with 55% of Blue Chip, 77% of Mid Cap and 95% of Small Caps are basically part of Russell benchmark. It's a real double platform.

It straddles ETDs, and asset management but we also have a footprint of reasonable substance in fixed income. So we're not commenting on the future because you never know I think we're extremely well positioned in that space.

And as always we never look at acquisition as a first I would say default position I mean if there is -- we have nothing and no possibility to grow because we simply being an infrastructure company do not have the tools then we acquire. The first reaction we will have when we discuss this with our Board and our executive committee is with the bits that have and they are not starting to become significant in terms of interconnectiveness which is why you are starting to see some of that organic growth coming through.

Can we innovate, can we change the market -- open access was designed just for that with what we have can we disrupt the market. We may succeed, we may not we're an optionality in the industry today all the other guys are positioned in a different way.

And I won't go into the game theory aspects of that but from an innovative standpoint -- innovation standpoint that always will be our priority. If it doesn’t work, if we do it the wrong way or if we miscalculate or if simply doesn't work then of course we can look at acquisitions.

I think we have about five minutes I know we've run off a little bit but are there other questions in the room? Okay in that case I guess we will end it here.

Thank you very much.