Betfair’s financial trading spinoff, LMAX which stands for London Multi-Asset Exchange, will make its debut today, seeking to replicate its sports betting exchange for retail investors. The platform is intended to retail investors online and LMAX will book a commission on each trade in a similar way it has done with its betting products. The trading platform will allow retail investors to trade CFDs in market indexes, fixed-income instruments, commodities and Forex products.
LMAX was created out of Betfair in 2007 and is 73.5% owned by betting exchange Betfair – with Goldman Sachs having a 12.5% share in the equity while the remainder is held by management. Last week, Betfair, the world’s biggest betting exchange, became a rare IPO success story in London when its stock rose 19 per cent in conditional trading valuing the company as high as £1.65bn. Earlier this year LMAX received approval from the UK’s FSA to offer contracts for difference, spread betting and rolling spot forex contracts.
The new trading platform will seek to match retail traders with each other and subsequently with market makers if necessary, and targets to capture part of the £2.5bn online retail market in derivatives. LMAX’s management is of the opinion that the derivatives market has experienced a 15% growth year-on-year over the last 5 years and they are targeting the 100,000-plus UK retail traders who are active in CFDs and financial spread betting as well as attract business away from smaller retail market-focused stockbrokers.
The LMAX model, which is built on Betfair’s original matching engine doesn’t replicate the traditional broker model; it is in fact a trading venue or a multilateral trading facility (MTF) to be exact which is like an exchange model and all trades are entered into the market as orders. This implies that at any time you can see the several levels of market depth for each market displayed on the trading platform within the deal ticket. You should note that stop loss orders do not appear on the visible order book. The trading platform aims to connect retail investors across the internet and take a commission on their trade in much the same way its parent betting exchange Betfair has done in the sports market.
LMAX will also offer central clearing via Anglo-French clearing house, LCH.Clearnet. LCH.Clearnet will be clearing the CFD trades and JPMorgan will clear foreign exchange, meaning LMAX will not take the risk should one party default. LMAX Limited is also authorised and regulated by the Financial Services Authority in the United Kingdom (Register Number 509778).
Robin Osmond, CEO LMAX and a former head of global investment banking at HSBC, commented that the trading platform will be the first to bring the advantages of institutional trading, including lower costs and clearing, to the retail market. He stated: ‘For the first time, retail CFD and Forex traders can access wholesale liquidity at wholesale prices.’ ‘We are the first single venue that is multi-asset anywhere in the world,’ said Robin Osmond, chief executive. ‘Really we are a better proposition as we are fair and open. We don’t take a position against our clients.’
Optiver, the high-frequency Dutch market-making enterprise, JP Morgan and Goldman Sachs have all bound themselves to provide liquidity on the platform, in a sign of the increasing appetite amongst institutional trading firms to tap into the growth of the European retail market. This month, Optiver and Dutch retail lender BinckBank went live with a retail platform which allows BinckBank’s retail customers to trade in shares listed on the Amsterdam Stock Exchange.
The move follows Citadel’s purchase last year of alternative execution venue Equiduct Systems from Börse Berlin, which the US financial firm is looking to develop as a venue for retail flow.