R5 offers a new electronic marketplace for emerging market foreign exchange (EMFX) and electronic non-deliverable forwards (eNDF)
Deutsche Börse AG today announced the purchase of a minority stake in R5FX Ltd., a London based FinTech firm specializing in emerging currencies, for an amount in the single-digit millions (in British pounds).
R5 focuses on developing a new interbank liquidity pool for eNDFs and EMFX.
It has been designed by and for the banks in order to optimize price and liquidity discovery. Its electronic platform combines the benefits of both exchange and OTC models for this fast growing sector of the global FX market. The company has already signed letters of intent with over 20 bank clients to join the venue and anticipates going live at the end of Q1 2015. These clients are based in the major financial centers, e.g. Hong Kong, London, New York and Singapore.
The planned new venue is a direct response to the market change from voice to screen trading in BRIC and emerging currencies. Regulation such as Dodd-Frank and EMIR require FX trading banks to change their current practice in the search for better liquidity, credit efficiency and the benefits of electronic trading. This expected shift is based, among other changes, on the regulatory requirement for better oversight and to clear NDF contracts in the near future.
“We are extremely pleased to announce this investment from such a strategically important partner and view this as a clear endorsement of our vision and business model. By leveraging our collective strengths, and working with our bank supporters, we intend to establish R5 as one of the most significant participants in the increasingly changing FX environment”, explained Jon Vollemaere, CEO of R5.
“Our investment in R5 highlights our focus on using innovation to drive our growth whilst expanding our footprint in the changing FX market place.
Deutsche Börse has already developed partnerships with start-ups and has simultaneously invested into exchange infrastructure in a number of developing countries in the recent past. These investments are complementary to developing our wider footprint in the global financial market place”, said Brendan Bradley, Chief Innovation Officer and member of the Eurex Executive Board.
EMFX trading represents 80-120 billion US dollar turnover per day and, whilst based on emerging nations, it concentrates in Singapore, Hong Kong, London and New York. Electronic EMFX trading has seen a 300 percent increase in the last twelve months necessitating an improvement in the channels used to communicate and execute transactions between those markets and traditional money center cities.
R5 will be available via both API and GUI interfaces and will use a central limit order book. It will also be connected to all the relevant clearing and reporting venues, to solve credit, compliance, counterparty and liquidity issues of EMFX.