Deutsche Börse AG today announced the purchase of a minority stake in R5FX Ltd., a London-based FinTech firm specializing in emerging currencies and Non-Deliverable Forwards, for an amount in the single-digit millions of British pounds.
R5 is focusing 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 is said to combine the benefits of both exchange and OTC models for this growing sector of the global FX market. The company reportedly signed letters of intent with over twenty bank clients to join the venue and anticipates going live at the end of Q1 2015.
The planned new venue is a direct response to the market change from voice to screen trading in the BRICS (Brazil, Russia, India, China and South Africa) and other 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.
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Speaking with Forex Magnates about the importance of Deutsche Börse minority stake for R5, the Founder and CEO of the firm, Jon Vollemaere said:”Deutsche Börse helps us greatly with their global reach and the market confidence they provide to R5. It’s a very good match indeed ”
“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 Mr. Vollemaere.
“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.
R5 has explained that the need for its service comes from the fact that EMFX trading represents a $80-120 billion turnover per day, but it concentrates in Singapore, Hong Kong, London and New York, not the emergency markets themselves. 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 financial centers.