Enhancing and expanding the global FX clearing ecosystem with the forthcoming launch of LSEG’s innovative NDF Matching platform

May 2023 in Supplements

The growth of the NDF market has seen a steady increase in the volume of trades being novated to clearing, but this is predominantly performed as a post-execution exercise.

As a result, the clearing journey can be onerous and ultimately prohibitive for some participants that want to make the most of the benefits that it brings. LSEG has a significant opportunity to utilise the strengths within the Group, bringing LCH ForexClear and LSEG FX Matching together to launch NDF Matching1 in October 2023. This will offer a unique and streamlined workflow, combining the benefits of anonymous execution, all-to-all liquidity, as well as the multilateral counterparty risk netting benefits of facing a CCP on a cleared-only central limit order book, (otherwise referred to as a ‘CLOB’), an exchange style execution venue that matches all bids and offers according to price and time priority. LSEG expects that spreads in NDF pairs traded on the new venue will compare favourably to those achieved through bilateral execution as UMR and SA-CCR impact more participants.

NDF Matching is being launched in Singapore, as the first phase of LSEG’s initiative to re-platform its FX trading venues onto the same technology that powers the London Stock Exchange, with full support from the Monetary Authority of Singapore (MAS).

Lim Cheng Khai, Executive Director of the Financial Markets Development Department at MAS said, ‘LSEG’s decision to launch cleared NDF Matching in Singapore underscores Singapore’s position as a price discovery hub. As a leading interdealer platform, LSEG’s venue is a key addition to our FX ecosystem and will play an important role in meeting Asian market players’ growing FX needs.’2

This will not only raise the profile of FX clearing, with only LCH ForexClear members and clients being able to access the platform, but should also more explicitly highlight the economic, operational and credit efficiencies that clearing brings to the market, which will ultimately lead to a differentiated price or preferential execution journey. The associated margin and capital benefits should become apparent to all.

To trade on the venue, all participants will be required to be onboarded at LCH ForexClear, either as a direct member or as a client that will clear through a designated clearing broker. A pre-trade credit check will occur on the venue, which will provide greater clearing certainty at execution and simplify the workflow. However, no credit capacity or documentation is needed to face other participants. A direct connection between the venue and LCH ForexClear will reduce touch points in the workflow and provide real-time updates and confirmations to all participants. Inserting LCH ForexClear as the CCP will maintain anonymity and provide participants with access to a broader liquidity pool, from a wider selection of counterparties, than would otherwise be available via bilateral execution. As a result, the expectation is that there will be interest from a wide selection of market participants.

The launch of NDF Matching will be the first step in replatforming LSEG’s FX venues, FXall and Matching onto common core technology – Millennium. Millennium powers the London Stock Exchange and Turquoise trading, and is LSEG’s proven cross-asset trading platform technology. A common core technology platform will improve system performance, increase trading efficiency, introduce new trading capabilities, and allow traders to benefit from easier API integration and end-to-end FX workflow capabilities via Refinitiv Workspace. The development of NDF Matching is in response to Asian customer demand, which highlights LSEG’s commitment to the region, and the location of the service in Singapore is designed to minimise trading latencies in Asia. NDF Matching should help to not only push the market to further electronification but to also offer clearing as a real choice at execution, which ultimately benefits all participants.

1 Workflow that NDF Matching will offer is subject to regulatory approval.

2 https://www.lseg.com/en/media-centre/press-releases/2022/lseg-launch-new-ndfmatching- venue-singapore-support-strong-demand-asia-market