The Last Look…
Posted by Colin Lambert. Last updated: September 16, 2024
A few weeks ago in this column, I discussed the impending imposition of brokerage by Bloomberg on FXGO and asked if it would be a tipping point for LPs? A problem with answering that question was the uncertainty over how much would be charged by the firm – that has now been cleared up.
Two sources have shared communications regarding the impending brokerage charges, due to come into effect on 25 April 2025, therefore I am confident the numbers are correct, and it seems to me that Bloomberg has clearly tried to walk a tightrope, whereby it charges enough to make it worth its while potentially upsetting some LPs, but also doesn’t go into direct competition with its peers who do not have the supplementary cost of a terminal workstation.
The headline number is, from next April, that Bloomberg will be charging $2.75 per million for spot trades in FXGO, while it will also charge $2.90 per million for one-month NDFs and $9 per million for other tenors. FX swaps on FXGO will be charged at between $0.15 and $4.15 depending upon the tenor (out to six months).
This puts the charges at the lower end of the scale when looking at other market participants, many of whom exist in the $3-5 per million range, and I suspect that Bloomberg has carefully considered the overall cost when setting this number – most notably that adding the cost of terminals to the bro bill will see it step into line with its rivals.
The problem the firm faces is, paradoxically, that it is late to the paying game, and as such too many have got used to “free” trading on FXGO, and they are unwilling to give it up. The fact is, they will have to, but at least three sources spoken to about this issue have told me that they plan on adjusting their pricing for FXGO clients when the brokerage fees kick in. Whether or not this will be noticed by the buy side is unknown of course…
The problem for Bloomberg is that the LPs are taking this, correctly of course, as an extra charge of their resources, rather than viewing it as the firm falling into line with other competitors. On which, several sources pointed out to me that the functionality on Bloomberg lacks the depth and sophistication of other platforms and expressed the hope that the extra money will be invested in rectifying this.
Bloomberg is also, sources tell me, attempting to pre-empt any push back by dangling incentives in front of its major LPs. After two years of the fees, it is promising discounts for its top-25 LPs – again, this is an approach often used by its competitors.
The only likely change from this is that Bloomberg’s FX business will increase revenues by around $120 million per year or more
Will then, this move actually lead to a change in LP behaviour, or trigger misgivings on the buy side? Inevitably, there have been howls of anguish from LPs bemoaning yet another cost centre on their business, and some buy-side firms have privately expressed concerns that their pricing will widen.
On the former, and assuming FXGO trades around $100 billion of spot every day, this is roughly an additional $70 million exiting the LP industry on an annual basis – and if the platform reflects the wider FX market in that around seven LPs dominate the environment, this is probably $8 million per LP – a not insignificant amount as regulatory and other costs continue to climb elsewhere. Equally, there are the non-spot costs to be added, the platform overall does north of $300 billion I am told, and that is significant money (just imagine if it had more of its recently-announced trillion dollar days?)
On the buy-side’s concerns, I suspect it will come down to what type of trading operation the firm runs. Those with professional desks, studying their FX executions closely, will probably notice a small difference, those without – and I think we can accept this is the largest segment of asset managers in particular – probably won’t notice. This means, for Bloomberg at least, the bulk of its volume will stay put, unless the LPs do more than just gripe about the cost.
So the move will continue to create noise in the market, but as to whether it actually triggers a change in behaviour? That I remain very sceptical about. The only likely outcome from this change is that Bloomberg’s FX business will increase revenues by around $120 million per year or more – and that is the reality.
