Part Two: LSEG’s plan to redraw the vast foreign exchange market

Continued from August 2

Neill Penney, LSEG's group head of foreign exchange, has said the British group can also leverage in its FX strategy the group's terminal and desktop businesses, with functionality embedded within its Workspace offering creating a network and allowing more innovation.

That has come with opportunities to enhance the growing bilateral market identified by the BIS, with enriched functionality that taps into its existing trading functionality, such as its FX Trading desktop portal that allows messaging and matching. Those streams have recently been brought together in a service called Advanced Dealing.

“That human element – the need to support manual trading – is an equally important part of our strategy to supporting automated electronic trading,” Penney (pictured) said. “Our Dealing network connects interbank traders in every FX dealing room in the world. As part of our FX investments, we’ve built a next generation version of Dealing, appropriately called Advanced Dealing. This is part of our new desktop offering, Workspace. The design goal of Advanced Dealing was to set it up for the next generation of users and banks, without losing what made it special in the first place – the capability for human traders to connect globally, and efficiently execute any type of FX trade, whatever the size or currency. This capability remains extremely valuable to the market, whatever the level of automation with more liquid trades.

“Emerging Markets are a good use-case, and in fact the first trade on the new system involved a counterparty in Nepal. But we also wanted to modernise. This means enabling API usage, so institutions can provide automated support to augment the salesperson or trader. For example, by attaching a ‘bot’.”

Integrating and updating user workflows essentially means simplifying the user experience, and LSEG is in the process of allowing traders on LSE majority-owned fixed income venue Tradeweb to simply complete related FX trades in a window within the Tradeweb platform. The hedging solution, first announced in June last year, links emerging market bond trades to hedging needs in currency swap markets.

“If you're an EMS provider whose core business is serving advanced execution needs for equity or fixed income traders, the cost of supporting FX execution as a secondary asset class is becoming increasingly unappealing as the complexity rises,” he added. “Part of our vision with our new FX venues is to enable them to become an alternative for EMS providers looking to provide FX offerings to their customers. Essentially, for these providers to see our FX venues as an attractive ‘manufacturing component’.

“We have been pleased by the level of interest across the industry to this approach and are excited by the partnership opportunities ahead. It’s an opportunity to provide customers with an improved FX execution experience and enable the EMS providers to devote more of their development budgets to their core equity or fixed income execution functionality.”

A similar effort is underway to link analytics functionality in TORA – the multi-asset class cloud analytics provider LSEG bought in February last year – to its FX liquidity directly through the network.

“The other way we think about partnerships is to enable customers to combine our platform with specialist capabilities they have purchased from other vendors,” he said. “We want to simplify connectivity, such as messaging flows, and streamline the user interface experience. I see this as a growing focus for us in the future once our initial technology modernisation is complete.”

Going back to the firm’s position in the overall exchange revenue landscape after the acquisition, Penney sees all of these initiatives combining to create a roadmap for the group.

“The evolution of the role of execution platforms within the overall market structure has been at the heart of our thinking,” he said. “What is exciting for me is that at LSEG, we have such a wide range of ingredients available to respond to customer needs. Across the company, we have execution venues, clearing capabilities, STP networks, execution workflow tools, multi-asset EMS’s, a new desktop product, and of course extensive market data.

“It enables us to think about solutions that wouldn’t be possible without all those pieces. Our cleared NDF Matching venue is a good example of this – it’s new for the industry, and the seamless integration between execution and clearing enables us to deliver the maximum possible benefits to our customers. This approach is something I see being replicated in other product areas because it enables us to help move the industry beyond its current level of technological advancement.”