THE E-FOREX INTERVIEW

THE e-FOREX INTERVIEW

LMAX GroupA firm that has built success upontransparency, precision in execution andits distinctive All Market Access model
LMAX Group is a global financial technology company and the leading
independent operator of multiple institutional execution venues for FX andcrypto currency trading. It operates a global marketplace for FX – enablingtransparency, open access and a level playing field for all market participants.
One of the fastest growing FinTech companies in the world, the firm now hasa solid presence and exchange infrastructure in all major global FX markets
including Europe, North America and Asia-Pacific. e-Forex spoke with its CEO,David Mercer, to discuss the group’s performance over the past year and hisstrategic plans for the future.
David Mercer

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LMAX Group - building success upon transparency, precision execution and its All Market Access modelDavid, 2019 was a good but aprecise, consistent execution to all

LMAX Group is the leading

challenging year for the financial

market participants. For example,independent operator of institutional

exchanges. However post-transaction,services industry. How did LMAX

net revenues went up 27%, reachingexecution venues for FX and crypto

at best we have seen static tradingGroup perform during this period?

US$56.3m, whilst total FX trading

currency trading.

volumes by acquired FX platforms,

volumes were in excess of US$3.5

so evidently these deals haven’t had

2019 was a challenging year for thetrillion, up 15% from the previous

The Group’s portfolio includes LMAX

the impact that these companies

market, which was characterised byyear. EBITDA increased by 30% fromExchange (institutional FX exchanges

might have hoped for. Bottom line

low levels of volatility and pervasive

last year to US$26.2m, making LMAX

and FCA regulated MTF), LMAX

performance is even more challenged

geopolitical uncertainty caused byGroup one of the most profitable

Global (FCA and CySec regulatedwith the additional costs that

trade wars, Brexit and an interest

exchange operators in the market,brokers) and LMAX Digital (GFSC

naturally come with larger exchange

rate stalemate. Against a challenging

with an EBITDA margin of 47%.

regulated institutional spot crypto

groups.

market backdrop, where volumes

currency exchange).

at most major venues have declined

Our success is a reflection of theand margins have contracted for

genuine shift that the industry has

What is your view on theplayers has highlighted the limitations

institutional-only market players,

undergone in the last few years:

performance of other exchangesof monoline institutional transaction

LMAX Group had an excellent year.

clients from all FX market segments

who have entered the FX spacebusinesses. It’s very hard to run anare trading increasingly more on

over the last few years andefficient and profitable business

The lack of growth among these FXLMAX Exchange execution speed

We continued to grow our market

order-driven firm liquidity andwhat makes LMAX Group’s

with a purely transactional model

All Market Access and Market Data

is why some recent FX platform

share and achieved record financial

requiring transparent, precise and

USP so unique and consistently

that only serves the institutionalmodels:acquisitions have not worked andsuccessful?

market, which already benefits fromperformance, a testament to theTHE E-FOREX INTERVIEW

electronic FX trading venues by equity

consistent execution.

have failed to generate recurring
revenues associated with exchange

resilience of our business model

some of the lowest transaction fees

– focused on delivering efficient

Please remind us about theDuring the last three years we havein capital markets. It’s natural fordeliver the same execution andtype, order driven market data

market structure and transparent,

constituent entities of LMAX Group.

seen a series of acquisitions oftransaction fee or commission-onlyliquidity access to all FX customer

offerings.

models to be challenged in lowsegments;• All Market Access offerings

volatility environments, which wehave seen for much of 2019. The

LMAX Group is unique in the industry• Market Data focused models areas we offer market and technology

large exchange groups who havecharacterised by primary FX venues

access to all customer segmentspurchased FX trading venues need

used for price discovery; recurringfrom institutional (HFTs, banks), retail

to expand the footprint of theirmarket data revenues for somebrokers and all the way through tonew acquisitions to add significant

can be as high as 40%-50% of theasset managers via the banks. We

corporate value.

total business.

target every FX client segment. If
you operate only in the bank space

In the current market, only two

It also needs to be stressed thator the HFT space, it’s hard to have abusiness models generate sustainable

market data based on ‘last look’

viable business model particularly inrevenues and shareholder returns:

prices is much lower in value, which

low volatility environments. So first ofall, you need distribution capabilities
to all segments of the market andthen have some part of your businessthat is recurring – and the recurring
revenue that you see in the bigexchange world is market data.
LMAX Global, a regulated
broker and part of the LMAX
Group, offers retail brokers andprofessional traders execution
services and exchange access tothe LMAX Exchange central limit
order book. How important are
Retail FX brokers to the future
strategy you are working on forthis execution venue?

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LMAX Group - building success upon transparency, precision execution and its All Market Access modelover the last five years, so hats off toeveryone involved.
It has made it harder for LMAX tocompete because hold times areshorter and there’s no pre-tradehedging in the’ last look’ window,
but I still fundamentally believe as
long as there is a speed advantage
and as long as the customer keeps
writing options to liquidity providers,
they will be disadvantaged.
We shouldn’t believe thesmokescreen that we need ‘last look’
for credit checks – a pre-trade credit

LMAX Digital Execution Schematicheck on LMAX Exchange takes
about 100 microseconds. So if you

it for central limit order book with

Let’s discuss LMAX Digital

haven’t done the credit check bystreaming firm liquidity only.

which has become the leading

THE E-FOREX INTERVIEW

then, waiting 10 milliseconds isn’t

We can do sevenmillion risk calculations
a second on LMAX
Exchange and a credit
check in about 100microseconds

institutional spot crypto currency

going to help – in fact it’s going toSo my view hasn’t changed on ‘last

make it more difficult because more

look’ but I am a realist and I have toorders have gone through.

exist in a market, especially in the US,

The rationale behind everythingexchange. Why did you launch it?

that is driven by that optionality. All

we do at LMAX Group is to service

So that argument is flawed – it’s

we can do is continue to impress on

our clients and LMAX Digital wasrelatively simple to build technology

our clients the reality that trading islaunched in response to clientfor ‘last look’, it’s harder to build

more cost effective without ‘last look’.

demand. Our client base recognisesthat the global crypto currency
market is at a nascent stage of its
development and that institutions

LMAX Group was an earlystandardisation of hold time durationneed a legitimate and regulated

customer segment in the FX

adopter of the FX Global Code.

within the ‘last look’ window would

platform on which to acquire, trade

ecosystem we service and offering

Retail FX brokers are an important

How successful do you think thisbe beneficial. I hope that the nextand hold crypto currencies securely

them access to our best-in-classinitiative has been and what still

draft of the Code will address all orwith high quality, deep institutional

technology and deep institutional

needs to be done?

some of these points.

liquidity. That’s ultimately why welaunched the first trusted, secure andliquidity is core to the Group’sstrategy.

Whilst the code has clearly delivered

You have always taken a strong

some positive developments for theposition against “last look”. Are

robust crypto platform.

In 2019, the Group saw a 23%

marketplace, we’re of the opinion

your views on that changing inWe built LMAX Digital based onincrease in revenues from thethat it could and should have gone

any way?

our proven, trusted proprietaryretail broker segment. In the last

further, something we were key

12 months, we have significantly

advocates for during the consultation

No, I haven’t changed my view. I stillprocesses over 1 billion of orders per

deepened our distribution

period. Nonetheless, we welcome

don’t believe in ‘last look’, I don’t

day and trades over $3.5 trillion FIAT

capabilities in this segment andthe progress that has been madebelieve an efficient capital market

per year. In April 2019, LMAX Digital

have invested in overseas expansion

and, as an industry, we are certainly

needs ‘last look’. I believe the best

was granted a license as a Distributedwith the acquisition of our CySec

in a better place and have betterway for anyone to trade is on firm

Ledger Technology (DLT) Provider

regulated broker.

standards. This said, there is still work

streamed limit orders, but I can’t

from the Gibraltar Financial Services

to be done to improve the Codebe the lone voice and the global FX

Commission (GFSC).

Through this acquisition, we haveand to address some FX practices

committee has come up with a Codeexpanded our presence in Southernthat are open to market abuse.

that legitimises ‘last look’. It is what it

In just over a year and a half since

Europe where, in Cyprus alone, there

Some suggestions around the use

is. What I would say is that ‘last look’

launch, LMAX Digital has become theare over 200 regulated brokers.

of ‘rejected order’ information andabuses have declined dramaticallyleading institutional crypto currency

42 FEBRUARY 2020 e-FOREXFX exchange technology, which

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LMAX Group - building success upon transparency, precision execution and its All Market Access model
trades. With a monthly record highof $8.6 billion traded in spot volumes
in June 2019 and daily record highof $1.25 billion traded on June 27th,
LMAX Digital has become the leading
spot crypto currency exchange
globally and it is our fastest growingexchange. Furthermore, the exchange
has been averaging $250m in daily
spot volumes over the last fewmonths.
In November last year LMAX
Digital started publishing its
daily trading spot volumes on
the exchange’s website, www.
lmaxdigital.com. What impact do

THE E-FOREX INTERVIEW

you think this will have?
exchange with over 20% share of theLMAX Digital’s rapid growth has

In addition to publishing daily trading

global spot market according to theexceeded all our expectations - thespot volumes on our website, LMAX

latest market research published byexchange became profitable in justDigital is already providing real-time

the analytics provider, TradeBlock.

five months after launch. In 2019

market data to some of the industry’salone LMAX Digital traded over $53

leading reference rate indices as wellbillion in spot crypto currencies andas contributing our real time volume

Has the crypto side of yourbusiness grown as you expected? completed more than 20 million

data feed to major institutional
analytics providers.
Providing the investment community
with access to our trading volume
data, in addition to real-time market
data, is an important milestone forthe industry. LMAX Digital is proudto lead the way in creating moretransparency and enabling a clear
picture of the true size of the spot
crypto currency market.
What role do you think LMAX
Digital will play in the future ofthe crypto market and how doyou see that evolving?
I am certain that LMAX Digital will
have a large part to play as the crypto
market moves into the mainstream
and large institutional investors start
trading digital currencies, bringing
more liquidity to the market. I believe
crypto is the future of money andLMAX Exchange Group is uniquely
positioned to offer market andtechnology access to all customer
segments in FX

has the potential to change capital
LMAX Exchange empowers traders to understand 100% of execution costs44 FEBRUARY 2020 e-FOREX

markets. My view is that as you
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LMAX Exchange – a firm that has built success upon transparency, precision and consistency in execution
What work have you been doing

greater insights that help our clientsto develop a global growthwhen making investment decisions.

agenda focused on the wider

Consequently, we expect our market

institutional segment and how

data offering to become a key

important will attracting thedifferentiator among FX execution

right people be in helping you tovenues and an area for future growthachieve this?

for our business.

With clients in over 100 different

As a result, our business model

countries and 11 offices worldwide,

enables us to continue the upward

we remain in expansion mode andgrowth trend; we are planning tohave built out our multi-hub offeringbuild on this momentum by investing

which positions us to maximise ourin our business to expand and deepen

global growth potential. Our focus is

our client relationships across thewell and truly on delivering our best-

globe, whilst continuing to deliver an

in-class services to all segments of theoptimal experience for the 600-plus

institutional market.

funds, banks, asset managers andbrokers that make up our global

We are extremely excited for ourclient base.

THE E-FOREX INTERVIEW

the years ahead and expect ourcore businesses to continue their

We put emphasis on our performance

growth trajectory. We are entirely

and believe that our uniquefocused on our mission to continue toproposition will help LMAX Groupdeliver a transparent, neutral, global

continue its growth path over themarketplace for all participants.

coming years.

We are seeing more clients value theIn 2021 we will reach the 10-year

quality of the market data provided

anniversary of the implementation

by our order-driven firm liquidity.

of the current strategy that has seen

Our ability to provide true price

LMAX Group become one of the most

discovery and liquidity from all market

profitable operators of global venues

segments means that we can capture

for electronic institutional FX trading.

With clients in 100 different countries and 11 offices worldwide, we remain in expansion modesee more initiatives around using theenvironment. As the market grows,

multitude of ‘last look’ feeds to be

The FX industry is a laggard in thisblockchain technology itself, you will

we will continue to grow andunique liquidity – mostly they aresense, compared to the equity

need digital assets to be transferred on

ultimately, I would like to see LMAX

purely re-vended quotes. LMAXand bond worlds, but I am of thethose blockchains. But that’s not going

Digital becoming the primary priceExchange has more liquidity thanopinion that market data will cometo happen overnight and it might bediscovery venue for crypto currencies,

at any other time in our history

to the forefront of the industry, as

five years until we see this happening.

as more institutions pivot and holdand together with the other true

businesses such as ours and the otherI honestly think we will all be trading

more capital in crypto currencies.

CLOBs you could argue liquidity

major players in the market seek

is better than ever. The perceived

to capitalise on its availability anddigital dollars, digital yen, maybe
bitcoin in five years from now, andLet’s turn our attention to a few

fragmentation is just some clarity ofpotential. The fact that we gather

using blockchain technology.

other key topics for investors andthe liquidity mirage we have seen

firm liquidity market data from all

FX market participants. Is the FX

develop through a last look haze inclient segments, often not accessible

LMAX Digital has already beenliquidity landscape as fragmented

the last decade.

through primary venues, puts us in

leading the charge and allowing

as many maintain?

institutional participants to enter thea differentiated and advantageous
What are your expectations

position compared to other players.

digital currencies market throughIn our opinion liquidity is only

regarding the future availability

This will be a key growth story for usa regulated and safe trading“fragmented” if you consider theand cost of market data?

in the next decade.

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