2020 has been a year unlike any other, a year full of challenges and hardships. However, 2020 was also an extraordinary year for LuxXPrime, the dedicated window for retail-sized trading on the Luxembourg Stock Exchange. We sat down with our Product & Client Development Manager, Luigi Campa to reflect on the past year and get his thoughts on what comes next for LuxXPrime.
How would you describe the 2020 trading activity?
Last year was definitely challenging. We had a rough start due not only to the public health crisis but also to the strong sell-off we saw in March. The market then started to slowly come back to what we had seen in previous years, with no or highly reduced yield offered by most fixed income instruments. In 2020, LuxXPrime trading activity was mostly retail-sized, and the average trade order was around EUR 15,000. This was supported by the liquidity providers that were the counterparty of almost all trades. In other words, liquidity providers and competitive spread levels supported the growth in trading activity. Last year’s developments show that our model works and that we have the capacity to build a strong foundation for future growth.
What were the most traded securities in 2020?
For the major currencies like EUR and USD, the trading activity of 2020 mainly focused on long-term maturity, be it over ten years or perpetual bonds. Trades in short-term maturity, meaning between 1-3 years, were more relevant in “exotic” currencies like TRY and ZAR. LuxXPrime trading activity was highly focused on corporate bonds. In fact, such instruments represented 61% of the trading activity, followed by sovereign and supranational bonds, which accounted for 38% of the total trades. Amongst the most traded corporate bonds, were all the high-yield bonds and perpetual investment grade bonds, rated from BBB- to C and BBB+, respectively. Lufthansa, ThyssenKrupp, K+S and Metro, together with Volkswagen International Finance perpetual bonds, were the most active names in 2020. Zooming in on the sovereign, supranational and agency segment, we saw a strong activity from the European Investment Bank, in both TRY and USD, from the Republic of Turkey in USD and finally from Romania with its long-term EUR bond issuance.
Has LuxXPrime expanded its investor base to new geographical locations?
Yes, LuxXPrime successfully developed its network enabling final investors from new geographical locations to access the market. Thanks to our new trading members, we were able to welcome investors from 13 new countries. This means that in 2020, the number of countries from which LuxXPrime receives investment flows doubled. Now, if we look at the most active countries, we notice that EU-core countries remain at the top position but new trading flows are arriving from Denmark, Russia and Turkey.
What key factors supported this growth in trading activity?
The on-boarding of new trading members was a key step in our development and gave us unique access to new investment flows from different countries. Other key factors that supported the growth are the reliable prices and competitive spreads available on LuxXPrime. Our initiative gave our members the possibility to improve their best execution policy, and provide their clients with access to a wide product offering.
How has the start of the 2021 trading year been for LuxXPrime? Have you noticed any major differences with respect to the same period in 2020?
LuxXPrime has had an outstanding start of the year. If we compare the activity of the first two months of 2021 with the same period in 2020, we see that we have registered a growth of +172% and +134% in terms of trade and turnover, respectively. Over the past six months, 50% of the bond trading on our exchange has taken place on LuxXPrime. Such figures suggest that our clients greatly appreciate the new segment, thanks to its enhanced transparency, continuous firm prices and strong liquidity. In addition, we have achieved our first intermediate target to quote more than 1,000 bonds and to improve our sustainable bond selection. We are now working hard to reach our second intermediate milestone: By the end of Q2 2021, we would like to quote more than 1,500 instruments. Our final target for the end of the year will be to offer investors more than 2,000 instruments. As you can see, we have set ourselves high performance goals but given our past results and continuous growth, we are on the right track to achieve them!
What do you expect the future will hold for LuxXPrime in 2021?
We started 2021 on the right track, despite the fact that macro-trends in the fixed income market have not changed. LuxXPrime activity is growing significantly versus the 2020 average. We have finalised an agreement with COLT regarding PrizmNet to sponsor connectivity to LuxSE and LuxXPrime. This will give our members and prospective clients the chance to benefit from a flexible offer and competitive prices to access LuxSE’s markets. We also plan to further strengthen our focus on sustainable finance this year. While we already offer more than 200 sustainable bonds, we will soon offer more, either by including the most interesting bonds or instruments displayed on the Luxembourg Green Exchange or by adding sustainable bonds from other issuers, such as the Italian Government’s first green BTP, already quoted on LuxXPrime. Last but not least, we are working on an ambitious project that aim to change our current post-trade process.
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