LSE Becomes Latest Exchange to Foray into FX

Yesterday’s news about the LSE taking over Refinitiv is only the latest item that points to a lively FX ECNs market. Electronic foreign exchange trading venues have been a hot commodity in recent years.

In the aftermath of the SNB crisis, the first big takeover deal materialized as BATS took over Hotspot FX for $365 million. A few months later, 360T was acquired by Deutsche Borse for €725 million.

A bit over two years ago Fastmatch was acquired by Euronext in a deal that valued the firm at over $165 million, while BATS got acquired by the CBOE and Hotspot’s technology changed hands again.

Finally, last year, the CME Group acquired NEX Group to greatly boost its fixed income and FX business in a $5.5 billion deal. The company sold off NEX Exchange earlier this year while keeping the lucrative EBS business.

Fast forward another year and back in April, speculation arose about a sale of the FXall eFX business to Deutsche Borse for $3.5 billion. The deal didn’t materialize, and yesterday we finally found out what is the conclusion. As already noted, the LSE is in advanced talks to acquire all of the assets of Refinitiv. The deal, however, is complex from a regulatory standpoint as is expected to undergo a long antitrust review.

With the evolving regulatory landscape, large deals like the above-mentioned are not a surprise. Rising compliance costs and increasing demand on the part of clients for a single go-to place for all their needs pushed exchanges to diversify into FX.

LSE's Strategic Thinking

With its acquisition of Refinitiv for as much as $27 billion, the London Stock Exchange is set to become a major player in the eFX space. “The digital transformation of the financial markets infrastructure landscape, together with the increased potential for innovation, is driving customer demand for sophisticated data content and Analytics provided on flexible and open platforms,” the company elaborated in a statement.

In fact, the deal includes two electronic foreign exchange platforms with FXall being complemented by what was formerly known as Thomson Reuters Matching (currently only Matching). Currently, FXall is said to have over 2,300 institutional clients trading foreign exchange.

With a wide list of products and currency pairs, the product is considered to have made a small revolution in FX trading after it surpassed the trading volumes of matching and prompted Reuters to acquire its competitor back in 2012 for $625 million.

In the current market environment, the LSE is clearly aware that in order to be among the leaders in financial markets infrastructure, it has to encompass multiple asset classes. Refinitiv’s global footprint with the company servicing over 40,000 customer institutions and the company’s trading venues businesses, which also include the Tradeweb Trading Platform is opening the doors to a massive expansion for the LSE.

After the market digested the news, shares of the LSE traded over 20 percent higher yesterday. With an average daily trading volume of over US$400 billion in FX and US$500 billion in fixed income, the business is well set to continue growing over the coming years.

In the aftermath of the SNB crisis, the first big takeover deal materialized as BATS took over Hotspot FX for $365 million. A few months later, 360T was acquired by Deutsche Borse for €725 million.

A bit over two years ago Fastmatch was acquired by Euronext in a deal that valued the firm at over $165 million, while BATS got acquired by the CBOE and Hotspot’s technology changed hands again.