LFP096 – A Deep Dive into Marketplaces in the Fintech Age with David Mercer CEO LMAX Exchange

Which UK FIntech does $3trn of business per annum and are in 7 countries? Well I guess for readers on the website the pic above is a bit of a hint. David Mercer CEO LMAX Exchange joins us today to dive into the subject of marketplaces which have been a fundamental part of culture forever and a fundamental part of Fintech as a mechanism for connecting buyer and seller more efficiently.

LMAX Exchange’s claim is that they are leading the global FX industry transformation to transparent and fair execution. Sounds good but before we get around to that we look in depth at Marketplaces per se.

Topics discussed in the episode include: 

  • the world record for playing rugby at the North Pole
  • how to get to the North Pole – useful consumer advice
  • David’s career journey inc the advent of electronic trading and brokerages
  • 2012 MBO buying 2/3rds of LMAX
  • they have been profitable since 2013
  • the goal being to create the #1 FX marketplace
  • “now the world is a marketplace”
  • “market access is key” – wherever you sit in the world you can access every product or service
  • in only 7yrs of operation LMAX have customers in over 100 countries – the cost of doing this 10 or 20 yrs ago would have been prohibitive and near impossible
  • it is becoming easier to discover the price of things in general
  • what is required to create a “good” marketplace – #1 for all is Trust
  • how this wasn’t understood by all in early Fintechs who attempted to create arms length marketplaces [eg & esp Platform Black – LFP037]
  • amazon and ebay as examples
  • self-regulated marketplaces vs regulated marketplaces
  • trust and credit
  • “it takes a while for the service to become consistent, uniform and trustworthy”
  • cf pre-Big Bang critique of “clubs” air but necessity “even now” of needing members and rules for members [= club (!)]
  • LMAX rulebook is less than 40pp (and has to incorporate MIFID2’s 1.7m paragraphs)
  • the pyramid of marketplace, members [~5k] and then their end-customers [~100,000]
  • the functioning of the Eurobond market – no rules, no marketplace; “towns with no traffic lights or roundabouts”
  • “the less rules the better”
  • risk and marketplaces
  • what the value is in marketplaces when they are being sold
  • what do you get when you buy a marketplace? What factors are the most important
  • build vs buy
  • 70% of LMAX’s costbase every year is technology
  • consolidation of marketplaces
  • what’s in it for the marketplace?
  • Fee levels $10 per $1m trade
  • the canard re “in a digital world fees will go to zero” – they won’t and why this will never happen
  • “we set up an exchange for the Fintech Age”
  • the need to get to scale and how the meaning of scale has changed
  • “people need to be paid to provide a service” – how this relates to opacity of pricing
  • why FX marketplaces now exist when they never did in the past
  • how the FX market is changing
  • 80 currency pairs – they trade up to 400
  • 24hr a day liquidity in sizes up to €50m; 5.5 days a week
  • price discovery over time and currently across markets/types of trade
  • regulation around best execution
  • a shoutout for my brand partners who are currently hiring in a wide range of roles
  • LMAX service private investors all the way up to hedge fund and bank
  • Volumes $3trn per annum (!!); $15bn per day (!!); 400 million orders a day
  • the average trade size is around $70-80k (up to $10/20m)
  • currently 80 microseconds to confirm a trade (!)
  • “we never stop recruiting quality technologists” … “quality problem solvers”
  • “we rewrite 1/3 of our software every year” (thereby avoiding legacy issues)
  • opportunities for salespersons/partners

And much much more!

Share and enjoy 🙂