ROBIN OSMOND does not come across as somebody intent on disrupting the status quo. But this is exactly what the softly spoken and quietly animated LMAX chief executive has in his sights with the launch of the firm’s new retail trading venue.
The exchange, which currently offers contracts for difference (CFD) and rolling spot FX, aims to shake up the market in which it operates. “What LMAX is about is disrupting the market for retail financial trading just as Betfair successfully disrupted the market for online sports gambling,” says Osmond, who stresses that he didn’t join LMAX nearly three years ago just to head up a “me-too company”.
It has been an exciting few years for Osmond, who had been in investment banking for some 20 years prior to heading up LMAX. He had initially dismissed his chances of working at LMAX because of his lack of knowledge about LMAX’s parent company Betfair or spread betting before being convinced by a head-hunter.
Since he joined, he has overseen the exchange from project stage to software development to seeking approval from the Financial Services Authority (FSA) to finally going live on 25 October. From the moment it opened for business – and indeed before – LMAX has sought to differentiate itself from existing market participants, emphasising its neutrality, transparency and wholesale liquidity as well as its status as an exchange.
Sitting in LMAX’s offices in West London, 45-year-old Osmond argues that LMAX has a better business model for retail traders because an exchange is not positioned against its clients: “There is a widespread perception out there among retail traders that when they are requoted or stopped out at a single tick point this behaviour stems from their providers’ desire to profit from their losses. By offering an exchange venue, LMAX gets away from all this.”
Osmond explains that he wanted to be part of something different in a fast-growing market, where increasing broadband penetration, customer dissatisfaction with paying intermediaries 2-3 per cent a year to underperform the index and the sophistication of the retail trader should fuel growth. For LMAX to succeed fully in disrupting an already competitive marketplace, it will certainly need the retail market to grow. But Osmond is far from a novice at drumming up demand – after all, his first venture involved filling an Oxford nightclub on a Monday night while still at university.
But the FSA took some convincing. LMAX was getting the ball rolling in the autumn of 2008 when the FSA had plenty on its plate and LMAX was proposing a multilateral trading facility in leveraged products aimed at retail clients.
This rang a lot of alarm bells, smiles Osmond, but adds: “At the end of the day I believe that the FSA authorised us and got behind our project because our product is about bringing a better proposition to retail clients than some of the existing business models and about bringing more and more OTC trading on exchange.”
LMAX has already brought three liquidity providers on board – Goldman Sachs, Optiver and JPMorgan – under deals spanning about two-and-a-half years. Goldman also holds a 12.5 per cent stake – Betfair owns 73.5 per cent – with further options to subscribe in the company if they perform its market-making obligations while Optiver has similar options to invest.
The intention is to increase this number to three to five liquidity providers per instrument. “That gives a very high level of liquidity, it will lead to very tight pricing – though even today we are seeing market leading prices particularly on some FX crosses and major indices – and will also give the exchange that resilience.”
But Osmond’s expectation is that LMAX will not always be reliant on institutional liquidity, believing that the volume of retail-to-retail trading will rise and the importance of the institutional liquidity providers will diminish. But he qualifies this: “I think that we will always need to have a level of institutional liquidity so that there are always prices when clients want to close out a position.”
Osmond, who admits to never really having looked at how an exchange can disturb a market and do something exciting before being approached by Betfair, is now a self-confessed “exchange convert”. He and LMAX are hoping you’ll be equally convinced.
CV | ROBIN OSMOND
Age: 45. Born in the UK but grew up in Bangkok, Hong Kong and Sudan.
Lives: In Barnes with his wife and three children, aged 12, 10 and seven. He cycles to work each day
Education: History at Worcester College, Oxford; MBA at Insead.
Career: Prior to joining LMAX, he worked for JPMorgan in corporate equity capital markets and as HSBC’s global head of investment banking. He started his career at Morgan Stanley, where he spent 15 years.
Interests: Cycling, running, cooking.
Books: Just finished Lacuna by Barbara Kingsolver. “I’m not a subscriber to reading a lot of business books or management self-help books; reading is for relaxing.”