How is LSEG structured now, and how did you perform last year?
Broadly speaking, we organise ourselves into three asset classes: fixed income, FX and equities.
The FX business was formally part of Refinitiv. We have been investing in the businesses that underly it, FX Matching and FXall, including re-platforming our FX Matching platform onto LSEG’s world-class technology. In Q3 this year, we will take the next step to harness the power of LSEG when we launch NDF Matching, which brings together FXall, our data and analytics, and our post-trade capabilities. We have also restructured our sales organisation and started to see increases in market share, as well as improving growth and revenues in our Matching business.
In equities, while global market conditions have been impacted by economic and political factors, London remains a leading listing venue. The business is performing well but it is important that rapid progress is made in the UK’s regulatory and market reform agenda, to ensure we have the best possible funding environment for companies.
We have continued to grow our securities trading business, and have increased our ownership of Turquoise, to around 85%. Further, our securities trading business now sits as part of the wider equities business in order to provide a much more seamless value proposition to our customers.
We are also hiring a new head of quantitative analytics and market structure with a view to focusing on quantitative analytics and data as part of our strategy. We already have a strong data and analytics business and we want to increase the use of those analytics in terms of the way we build products and the way we sell to our customers.
We’ve also changed our incentive schemes – more radically so in Turquoise than in LSE, and the goal here is to offer a more competitive price point and gain market share. We are seeing that happen now. We doubled our market share for Turquoise in Q4 2022 and that is continuing to grow.
In fixed income, Tradeweb continues to have a leading position in electronic trading of government bond, credit and interest rate products. The relationship between Tradeweb and LSEG is particularly strong and later this year we will launch connectivity between Tradeweb and FXall, offering customers the ability to trade emerging market securities and currencies on a single screen. This will bring significant workflow benefits and reduce customers’ execution risk. There are a number of other initiatives that we are exploring with Tradeweb across our divisions: data analytics, capital markets and post-trade. We’re quite excited about opportunities there.
What new initiatives are you currently working on?
Last year saw a few other significant developments for us. One was the launch of the Voluntary Carbon Market – becoming the first exchange in the world to use public market infrastructure to facilitate and accelerate the ability for companies to raise capital for carbon reduction projects. In December, we welcomed Foresight Sustainability Forestry as the first London-listed investment trust to receive the VCM designation and expect other funds to list in 2023.
We are also building our private markets offering. In 2022 we made a strategic investment in Floww – a platform that connects investors, private companies and intermediaries – as part of our ambition to develop a private markets ecosystem.
We want to be the first exchange group that is truly indifferent as to whether a company is public or private. This is a very different strategy to other exchange groups who see private markets as a gateway to an IPO. We don’t see it that way. We see capital raising and the transaction of private securities as a tool for a company for life. We want companies to have access to funding across their lifecycle, from a small company needing private capital through to a very large multinational company needing public capital, all the way along that chain.
In a broader context, there is ongoing work by UK government and regulators to restructure our markets to support companies as they move through the funding continuum. This includes the creation of an intermittent trading venue that will facilitate transactions of private securities We are working with them to build that mechanism and develop a regulated private market ecosystem.
Finally, another big development in 2022 was the start of our ambition to create a digital market ecosystem. We are working with a number of fintechs to pave the way for securities transactions to happen digitally rather than through analog sets. We are starting with smaller use cases with a view to building a digital ecosystem and infrastructure for securities markets around the world.
What do you hope to achieve in 2023?
In the traditional primary markets business, it’s to maintain a leadership position in capital raising in this time zone. We see market and regulatory reform as essential to ensuring that the UK capital markets provide the best possible funding environment for companies. In the securities trading business, it is to make that pivot to being more quantitative in the way we sell and develop products and to continue growing market share across LSE and Turquoise. That is how we would define success.
It’s worth remembering that for LSEG, less than 5% of the Group’s revenue comes from our equities business. The remaining c.95% comes from our data and analytics division, our post-trade division and other asset classes within capital markets including FX and fixed income. However, the growth of our exchange and trading venues is central to our business strategy, and we want to continue on that path by leveraging our global footprint.
We’d also like to see as many transactions as possible completed on our nascent markets of private, carbon and digital – all things that didn’t really exist a year ago – and for there to be a deeper understanding in the market about these new vehicles.
Something else we see as a trend is increased retail participation in markets and the growth in retail price formation. We see a very big increase in retail participation especially from Asian investors, who have a desire to invest in global securities. Turquoise is an RIE for both Hong Kong and Singapore and we can already facilitate transactions in European and UK securities for Asian investors. But we want to go further than that and offer US stocks for trading on Turquoise during our time zone, so that Asian investors are able to trade US stocks during more friendly hours. That’s a live project for us right now.
What challenges in the market are on your radar for the coming year?
The capital raising environment due to multiple factors including inflation, interest rates and geopolitical tension. We haven’t seen the same primary capital raising environment we saw in 2020 and 2021, for example. And whilst we expect that to come back in 2023, and we are working proactively to help support that recovery, it’s still a risk that I have my eye on.
In terms of secondary trading, we’ve seen volumes in the UK and Europe decrease in recent years while volumes on the US and Asian exchanges continue to be very robust. That’s why we want to leverage this time zone’s attraction to global investors from a trading velocity perspective.
Our focus this year is on executing our ambitious transformation agenda to ensure that we can continue to compete internationally as a very strong multi-asset class, multi-jurisdictional business.