Thus far, some of the acquisitions of OTC FX platforms by exchange groups have not proven to be as fruitful as previously imagined, argues David Mercer, CEO of LMAX Exchange Group in a new video interview with Profit & Loss.
Casting a critical eye over the competitive landscape in the FX platform space, Mercer makes the case that there is a clear divide in terms of which exchange acquisitions have — and haven’t — worked out.
“A great deal was the big Chicago deal, that’s clearly a market data deal and that makes sense. The one being talked about right now with the LSE is again a market data deal, again it’s a great deal as they have lots of [data] and they have recurring revenues. The deals that don’t seem to have worked for me are the institutional transactional platforms” he says.
Expanding on this, he claims that exchange groups that have bought OTC FX platforms without strong market data revenues have struggled to make a profit on them amidst broadly declining institutional transaction revenues.
“So it doesn’t always follow when you buy these independents and put them in a bigger shop that one plus one is going to equal three, sometimes one plus one equals one and a half,” says Mercer, adding that he is interested to see if anyone can make a success of these types of acquisitions that have occurred.
Although noting that LMAX Exchange does face a challenge when it comes to competing with these firms that can operate at a larger scale, Mercer also comments: “I think we’re the last independent FX venue, and I think there’s a place for that.”
Click below to watch the full interview with Mercer — during which he expands upon this idea that market data focused platforms have a brighter future ahead of them compared to ones that remain more centred around generating revenues from transaction fees and explains why the crypto industry is still waiting for the banks to get involved in those markets.