Could the London Stock Exchange be preparing itself for a revolution? Certainly, great things are expected of Xavier Rolet, who as a former Credit Suisse, Lehman and Goldman banker, should have a good sense of how the exchange was failing to meet the needs of its banking clients, and bring about the kind of change it needs to plow through the inhospitable new competitive environment when he takes over as chief executive from Clara Furse on May 20.  Last summer, the exchange showed the first clear signs of acclimating itself to competition from multilateral trading platforms such as Chi-X and Turquoise designing its own pan-European electronic trading platform, Baikal. LSE now says it's planning the launch for July, beating Deutsche Boerse which last week said it would be rolling out its existing electronic trading platform, Xetra, to offer trading of stocks from six European countries to a number of its existing customers.  One of the big questions will be what LSE ( LDNXF - news - people ) intends to do in the derivatives market. Equities trading currently makes the bulk of LSE's revenue -- it's British and Italian equities exchanges generated 26.0% of its revenues last year, with derivatives and fixed income accounting for just 8.0%. The recent promotion of Raffaele Jerusalmi, from head of the derivatives and fixed income business to director of capital markets (which includes both derivatives and equity) certainly raises the possibility that derivatives and fixed income will be given increasing focus by the group. However, analysts are skeptical of the LSE's ability to compete in a derivatives market that's already dominated by Deutsche Boerse, and Liffe, the derivatives arm of NYSE Euronext ( NYX - news - people ). The barriers to entry are high says Sanford Bernstein's Dirk Hoffman-Becking: access o a clearing system is essential to be competitive, but Deutsche Boerse is unlikely to help out a competitor and contractual obligations between NYSE Euronext and its clearing partner, LCH.Clearnet, don't leave any room for the LSE If there will be any growth in derivatives, it would be in pushing forward the international equity derivatives business, says Elie Darwish, of Exane BNP Paribas ( BNPQY.PK - news - people ). In 2006, the LSE launched a successful futures and options business based on Russian securities traded on the exchange's international order book. Most likely, however, will be the development of post trade services: so far its restricted to two Italian divisions, Cassa di Compensazione e Garanzia - which acts as a central counterparty, removing risk on trades in Italian bonds, equities and derivatives, and its Monte Titoli clearing service have accounted for a growing share of the company's revenue, from less than 3.0% in 2007 to 14.0% last year - partly as a result of trading revenues drying up as the markets collapsed last year - so its only a matter of time before this moves to London too.  But perhaps most pressing of all, says Hoffman-Becking, is cutting costs. On the technology front, the LSE has moved swiftly to make itself more competitive with its upstart MTF rivals, but with a vastly larger workforce (LSE's last headcount was around 1,200 compared to between 20 and 40 at the upstarts) it's been struggling to remain price competitive: Chi-X, which has been the most successful at prizing market share (now just under 20.0% of FTSE 100 trading) and liquidity away from the LSE, claims that its trading services are nearly nine times cheaper than that of the LSE.  Rolet might be the right man for the job but he's not going to bring prosperity to the LSE by cutting costs -- no exchange will ever be able to cut costs to the point where they can compete with the myriad of alternative trading platforms that spring up all the time.
The LSE is boxed in by the competition. It's new CEO searched for growth in a crowded market.