The Last Look…

There has been a bit of a buzz around the news that LSEG is changing tack in its FX business, but frankly, I am not sure the firm had any choice.

The scars from the EBS re-platforming are still fresh in the minds of the industry, and there have already been delays at LSEG as it responded to concerns the work simply couldn’t be done in time at the customers. Throw in doubts over the direction of travel at the firm’s FX business, as well as its actual ability to deliver change – two factors that may have led to the management changes earlier this year – and you have a tricky environment for the firm, one that it is trying hard to navigate.

Speaking to people in the industry, there is a minor divide over how prudent the new approach – an incremental approach to development so as not to overload client technology teams – is, but overall, the reaction is positive. For those with doubts, they were mainly voiced around how the firm will manage what is still a big transformation, specifically can it establish a workable and co-ordinated timeline for its various releases?

On the other side, several people I spoke to saw this as reflecting a more “normal” approach to technological change – one that does not risk alienating or overloading clients.

It seems clear that the focus for LSEG FX in the coming year or two will not be the spot business – there is a sense that Matching works well and changing that too much would require the heaviest lifting by clients. I still maintain that FXall needs a new “skin” (and has done for several years!), but even though there is a lack of detail in the firm’s FX volume reports, it’s clear that spot is doing as well as it probably can across the two venues.

This is not to say the firm should take its eye off that particular ball, though, for Matching will face a stern challenge in the new year from CME’s Spot+. I don’t particularly think that CME and LSEG need to view each other as major rivals in spot matching, rather it is about maintaining the model the two primary venues offer, but there is little doubt in my mind that while there is naturally a risk of cannibalisation of EBS from Spot+, the big target of the latter is likely to be the Commonwealth, Scandi and EM pairs that are the bedrock of LSEG’s Matching.

It had become clear that delivering the big re-platforming project was going to take too long and would likely alienate a number of clients…by shifting to an incremental approach, LSEG FX will be able to build some momentum

Overall though, the big opportunity (cue groans from the readership – yes I am still banging this drum) for any platform remains the FX swaps market and LSEG is no different – indeed it already has skin in the game. LSEG FX will continue to champion the NDF market, and the connection with clearing could become more important and beneficial than it has proved to date, but for me the swaps should be the key focus, specifically changing how it functions to allow better matching in larger amounts.

I have previously expressed optimism about the management changes at LSEG FX, and have not changed my mind – there seems to be a refocusing on the client rather than the technology – even though the latter, as recognised, needs work. What is probably the smartest aspect of the new direction of the business is how it allows it to achieve something that I feel is very important to its longer-term health – small wins in the short-term.

It had become clear that delivering the big re-platforming project was going to take too long and would likely alienate a number of clients. I understand this is as much about perception as reality, but by shifting to an incremental approach, LSEG FX will be able to build some momentum, which will be critical if it is to ward off future challenges and, crucially, maintain a strong position in FX swaps.

There is one other area that might be worth keeping an eye on as well when it comes to LSEG FX – indeed the wider FX platform world. We have written regularly about FX options and spoken about this on panels at Full FX events, there is a growing belief that FX options market participants are more open to automation than their FX swaps brethren. If this is indeed the case – and I also sense it is – then another small win for any platform would be establishing a position in FX options.

I am not sure whether it is worth expending valuable time and resources on building something, so over the next 12-18 months, I suspect the existing players in the FX options space could field more than a few calls from prospective suitors. From nowhere, these “ugly ducklings” will increasingly look like swans.

Ultimately, the change of tack at LSEG FX makes sense, and seems to have generally been well-received, especially amongst overrun bank tech teams. There is likely to be a more regular cycle of releases from the firm as it rebuilds the tech, releases new products and fills gaps. There is no guarantee of success, of course, and the firm will have to undertake this reformation amidst increased competition from its peers, but by establishing a more focused approach, a decent start has been made.

colin@thefullfx.com