David Mercer, CEO of LMAX Exchange, talks to Galen Stops, deputy editor of Profit & Loss, about why FinTechs are enablers rather than disruptors of the FX market.
The world “disruption” is often applied to FinTech firms, yet Mercer argues that in FX the role of these firms is not to disrupt but to enable the growth of the market.
“We’re trying to enable the industry to operate more efficiently and more fairly. Other people put that disruption word around companies like LMAX Exchange but the FX market is the biggest asset class in the world, it doesn’t really need disrupting, it needs to grow and it needs to be enabled to allow it to grow.
“It’s five trillion dollars per day, that’s thirty times the fixed income market and ten times all the equities markets, it’s got to get to ten trillion dollars per day, it needs to be enabled by modern technology,” he says.
Rather than specific technologies that will help the FX market grow, Mercer says that what is important is the process behind how technologies are developed and implemented.
“It’s more of a mindset change. You must never stop investing, if you stop for a year, if you focus maybe on the bottom line for just a year then you’re behind the eight ball and this is what happens at some of the larger institutions, they just cut their technology budget,” he comments.
Cutting technology budgets leads to increased expenditure to maintain old technology, which is why Mercer advocates continuous investment in technology.
Despite the latest Bank for International Settlements (BIS) survey showing that the FX market has contracted in size for the first time since 2001, Mercer remains bullish on the future growth prospects of the FX market.
“By definition there will be more foreign currency transacted. As the world becomes more global, as you’re seeing more aspirational economies, certainly led by the Asia Pacific region there has to be more foreign exchange, it will happen,” he says.
Mercer adds: “Sure, there’s been a very small contraction but there’s been rapid growth over the previous fifteen years, so I fully expect this industry of ours to be ten trillion dollars per day by 2025.”
You can watch the full interview here: