UK, LMAX Troubles

August 15, 2011Andy No Comments »

Apparently things aren’t too well over at LMAX. The LMAX CFD and FX trading platform backed by Goldman Sachs and owned by Betfair reported a pre-tax loss amounting to £13.2m in the year to April 30, 2011 on revenues of £271,000. Total losses since launch are now running at £25m.

The platform was designed to place orders for CFDs and spot foreign exchange (FX) contracts directly into its own central order book, which matches buyers and sellers – with LMAX making its money from a commission on each trade. The trading platform which was launched last October, promised to bring institution-style dealing to the retail investment world, but the platform has so far struggled to build liquidity and signups have been below expectations. The CEO and platform’s chief operating officer both departed earlier this year and Goldman has expressed dissatisfaction at the performance of the business. Share CFDs, originally announced for early 2011, are still nowhere to be seen.

The results come as the financial betting exchang, which is 74.8%-owned by online gambling giant Betfair, with Goldman Sachs holding a 12.7% stake, is set next month to lose its head of legal and compliance, Dario Crispini, according to industry insiders.

A company spokeman however noted that LMAX has revised its operations and is starting to benefit from an increased product offering. David Mercer, LMAX’s new chief executive stated ‘We’ve refocused the business, widened our scope and these efforts have already helped activity to pick up since April and May.’ ‘Though we are aware this is still very early days, we believe we’ve got a great platform to provide a range of financial products to the private investor.’

When Betfair reported its annual results in June, its chief financial officer, Stephen Morana, said LMAX still offered potential opportunities for the group, but added that the operation was under review.

In a meeting with analysts, Morana stated: ‘We think the next 12 months is a realistic time-frame to understand the potential of the business. We need to see the trajectory that means it’s worthwhile putting any more money in. If it doesn’t, we won’t.’

Comments: I really think they need to do some significant investments in order to attract more clients, especially a more sophisticated trading platform, more products and a aggressive marketing campaign. Curious if they are going to do that or just cut their losses, seeing that the mother ship (Betfair) isn’t doing too well either recently.

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