e-Forex Magazine | Special Report | LMAX Exchange. Exchange style trading for spot FX

Special Report

David Mercer

LMAX Exchange. Exchange style trading for spot FX

First Published in e-Forex Magazine July 2013

David Mercer

LMAX Exchange is the first MTF for FX, regulated by the FCA. Established to deliver the benefits of exchange quality execution to both buy-side and sell-side trading institutions, LMAX Exchange brings market participants together in an anonymous, order-driven and fully transparent environment

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The exchange style execution model, which is at the core of an MTF concept, is the most effective way to trade liquid products, such as spot FX. Just as on an exchange, orders are matched in price/time priority but trading is still bi-lateral with FX trades cleared through the prime broker network. Furthermore, LMAX Exchange is not a market-maker, and unlike many ECNs, the open order book is driven by streaming, non 'last-look' limit orders supplied by our liquidity providers.

To date only LMAX Exchange has launched a truly exchange-style trading model. The value proposition focuses on efficiency, fairness, trading transparency combined with ultra-low latency, precise and consistent execution.

David Mercer, CEO of LMAX, explains that, "The existing client base is mostly institutional and includes broker dealers, proprietary trading firms, money managers and funds." However, he says "the client demand for transparent, precise, consistent, low latency execution exists across all FX client segments and this is the opportunity that LMAX Exchange is addressing".

The LMAX Exchange business model is also at the forefront of the regulatory changes that are advocating greater transparency, on-exchange trading and centralised clearing of FX derivatives. LMAX Exchange, though only for spot FX and metals, is leading the industry's transformation towards transparency. From an execution standpoint, LMAX Exchange already offers on-exchange trading as well as pre- and post-trade transparency. From the clearing perspective, LMAX Exchange technology is set up and enables all three clearing models: prime brokerage, central counterparty (CCP) and centralised clearing through LCH.Clearnet.

In summary, LMAX Exchange addresses key industry challenges, such as the lack of transparency of the true cost of OTC traded FX, and the lack of precise consistent and reliable execution in FX trading.

Expansion into other client segments, including the recently launched LMAX InterBank, extension of the global client base and potential diversification into other on-exchange traded FX products are planned.