The Last Look…

Any time there is change at the top of one of the FX industry’s major platforms it creates a buzz, especially if it is one of the primary venues that so many in the market grew up with; so what to make of the change at LSEG FX, or, as most of us still refer to it (sorry LSEG, you’re just the latest who’s going to have to swallow this one), Reuters?

It is no secret that the primary venues have suffered over the past decade or so, and while we don’t know the exact numbers for Matching thanks to a lack of granularity in the volume reports, it has clearly suffered alongside rival EBS Market. In 2011, the year before then-Thomson Reuters bought FXall, the platform reported just over $150 billion in spot average daily volume (ADV). Obviously, the company had other spot sources, but Matching was the major platform in the stable. Compare that to the $96 billion-odd that the combined platforms transacted in 2024 and you get an idea of that decline, given FXall is largely understood to have been stable over that period.

This is not to highlight, again, the decline of the primaries – it can convincingly be argued that running one of those venues over the past decade has been an impossible job if one of the key metrics for success was volume – more it is to highlight that what is probably required is a reset on the part of the owners. A return to the glory days of the primaries is just not going to happen – although as I wrote last year, I suspect they may be near their lows – which is why I like the appointment of James Pearson as head of the FX business.

Put simply, it has to be about much more than just spot and NDFs. There remains a huge opportunity in FX swaps and one of the drivers of any growth is going to be the end-to-end workflow, including the capital efficiencies that are increasingly required if that business is to be sustained. We should not forget that SA-CCR, widely seen as big driver of banks seeking more capital efficient mechanisms, is still not in effect globally – there are some major FX banks still not subject to it, but that will change.

There is clearly still an opportunity in swaps for FX platforms, accepting that the journey will be long and arduous and probably slow to provide rewards. Looking across the platforms, especially those owned by exchange groups, LSEG is in a good position – and has been for some time, thanks to ForexClear establishing a leadership position in OTC FX clearing. True, the exchange doesn’t have an FX futures business, which could detract from its offering if the world goes that way – personally I don’t believe it will – but it does have the trading platforms, the workflow, the compression services and the clearing – all of which are already handling good volume. If the group can firmly establish client clearing for OTC FX, that door of opportunity opens a little wider.

The next couple of years could be very important for LSEG FX and its peers, the FX industry could look very different in just three years’ time

It is a surprise to some that the Reuters-legacy non-spot business has failed to grow in recent years given the opportunity, but as I noted, the road to grow swaps is not an easy ride, however that opportunity still exists – no-one else has grabbed it either. A quick glance at the numbers provides an indicator – from 2019-23 CLS FX swap volumes were up 8.6%, in the same time Refinitiv/LSEG FX rose just 2.3%. In part this is due to increased competition, for example Deutsche Börse’s 360T saw non-spot volume rise some more than 50%, (albeit from a smaller base), but if the $36 billion-odd the latter has added were on the Refinitiv/LSEG docket, that platform would have been up over 12% from 2019.

Given how, thankfully for the industry I have to say, the various compression and clearing services are open when it comes to connectivity, exploiting the opportunity in this field is going to be difficult, but by having everything under one roof, LSEG does have, potentially, the ability to attract by bulk-billing its pricing. That is, I am glad to say, a decision and analysis that someone else has to conduct, but it serves to highlight how important the next couple of years could be for both LSEG FX and its peers – the industry could look very different in just three years’ time.

Going back to the spot (and NDF) world, there seems to be a stability around what venues do what. ADVs seem to have settled down and fluctuate with the level of overall activity – no-one seems to be making a move. It will be interesting to see if LSEG FX can leverage the opportunity in NDFs from a Singapore matching engine, that region is seeing good growth after all, but probably the number one task for the firm is to finally get its technology and platform upgrades rolled out. These have been happening, but too many people I talk to, on the buy side crucially, have been left unhappy by a series of glitches over the past couple of years. Solve this, give the venue(s) a look and feel that works for the modern generation, and the likelihood is that the venue(s) will continue at their current level in spot. This allows them to seek growth in swaps and NDFs (and perhaps options?) Such a scenario should be seen as a success for LSEG FX, because there have been genuine fears that rather than maintain its place, the Matching/FXall businesses were threatened with decline. Reversing that perception (or reality?) is task number one.

LSEG has had long enough to study the business; it has made changes, it now needs to back those changes

There should be one very big positive for the LSEG FX business as it seeks to build out, or rebuild – one that also exists, and has been recognised at CME for example – ownership stability. At CME, it has allowed the firm to streamline its FX leadership, the requirement at LSEG is different, but can be helped with ownership stability. I suspect we will look back with the benefit of hindsight (I am happy to make the call now for what it’s worth) and see the inherent instability brought about by three different owners in just a few years as being behind the lack of progress.

I know there are those who believe in keeping a business on its toes, and complacency is always a negative, but so too is uncertainty. What any business needs is the knowledge of just who is in charge, at both board and management level, and that has been absent from the Reuters-heritage business for too long now. Either way, LSEG has had long enough to study the business; it has made changes, it now needs to back those changes.

There is no doubt that other venues have grabbed a chunk of the spot business from the primary venues, but in general there is a merry-go-round aspect to this – in general the platforms’ collective share of spot trading is not going up, if anything it is the opposite. This does not mean these platforms are unsuccessful – they demonstrably are – more that what will decide the next group of successful firms is away from the spot markets, and it is that factor that makes the change at LSEG FX intriguing; has it decided that also? colin@thefullfx.com