Venues face challenge to make FX acquisitions pay their way
Leading exchanges have seen little return from their investment in electronic trading venues and face some tough decisions over how to increase revenues.
Exchanges have been busy bolting on new acquisitions during the past 18 months.
Shareholders of the London Stock Exchange (LSE) have approved its deal to purchase Refinitiv, a financial data business that was carved out of Thomson Reuters and bought by Blackstone in 2018.
Deutsche Börse, meanwhile, has acquired GTX, an FX electronic communications network (ECN), while CME Group has bought NEX, which included the EBS trading platform.
The moves appear sensible. Each of the exchange operators has opportunities to provide trading, clearing, processing, data and analytics tools to both pure FX traders and traders who are hedging against securities or derivatives.
“The merger between LSE and Refinitiv should be a powerful package as it brings together the data expertise of Refinitiv with the trading experience of the LSE to create a services provider to banks and brokers offering a platform for trading shares, currencies, bonds and derivatives,” says Henry Wilkes, head of foreign exchange at Point Group, a consultancy firm.
Exchanges are now highly electronic marketplaces, so investment in electronic FX trading platforms is a logical move.
This is particularly important because of increased regulatory oversight, such as the European Securities and Markets Authority (ESMA) guidelines in Europe, which have increased compliance costs and squeezed exchange operating margins, according to Jason Hughes, global head of sales at ADSS, a multi-asset trading company.