2021 was a unique year for financial markets which, despite being faced with continued uncertainty over the global health crisis, started to recover and gain strength. While Covid-19 continued to dominate the headlines, LuxXPrime – the Luxembourg Stock Exchange (LuxSE)’s dedicated window for retail-sized trading – experienced significant growth. We sat down with LuxSE’s Product & Client Development Manager, Luigi Campa to reflect on the past year, delve into trading trends and get his thoughts on what comes next for LuxXPrime.
How would you describe the 2021 trading activity?
2021 could be characterised as a turning point that saw the start of a rising trend in yields, as well as the return of a strong and sudden inflation partly due to a rise in energy and commodity prices. In parallel, 2021 saw volatility and uncertainty infiltrate the fixed income markets. Given this context, we are pleased with our 2021 trading activity results at LuxXPrime, as we managed to achieve growth, offer new options to investors and continue to provide a reliable service throughout the year. To put this into perspective, last year LuxXPrime recorded a 69% growth in the number of trades, while the number of instruments listed on LuxXPrime rose by more than 50%, from 920 to over 1,300. More importantly, we were able to offer a very reliable service by providing our clients with continuous and applicable prices on a monthly average covering close to 99% of the trading hours, as well as offering very competitive spreads compared to other trading venues. These numbers are very encouraging for our platform and serve as an indication of the quality and reliability of the service we offer, in partnership with our Prime Liquidity Provider EUWAX AG.
What were the most traded securities in 2021?
In 2021, we saw that our members were still looking for yields, and many investors favoured long-term maturity trades in established currencies such as the EUR and USD. Nevertheless, we registered trades in eight different currencies out of the 12 we trade, and Turkish Lira was the most popular currency representing just shy of 23% of trades. Bonds issued in Turkish Lira from supranational issuers and development banks, such as the International Finance Corporation (IFC), the World Bank, the European Investment Bank – as well as USD-denominated bonds from Turkish issuers – saw strong demand. Another trend we noticed was the growing demand for long-term maturity bonds in EUR, with more than 50-year maturity bonds issued by Deutsche Lufthansa, Bayer and Volkswagen International heavily traded. Finally, we also saw a growth in the demand for the social bonds issued by the European Union, listed on LuxSE and included on the Luxembourg Green Exchange (LGX) in the period from October 2020 to May 2021.
What can the growth of LuxXPrime in 2021 be attributed to?
Last year on LuxXPrime, one of our key objectives was to increase the liquidity and real time pricing information on green, social and sustainability bonds that are listed on LuxSE and displayed on LGX, as well as to increase the number of sustainable bonds that are traded on LuxXPrime. We managed to do just that, and during the year the offer of sustainable debt instruments on LuxXPrime grew to more than 280 traded instruments, taking into account the addition of sustainability-linked bonds (SLBs) in 2021. There are currently 8 SLBs available for trading on LuxXPrime.
How has the start of the 2022 trading year been for LuxXPrime? Have you noticed any major differences with respect to the same period in 2021?
Generally speaking, I would say that 2022 started in the same tune as 2021 ended – with rising bond yields which will bring strong volatility on the fixed income market, and with an additional constraint to the fixed income markets brought about by the Central Securities Depositories Regulation (CSDR) which came into force on 1 February. The risk of penalties for settlement failure introduced by the regulation has introduced a new risk that may have an impact on the provision of liquidity carried out by market makers. As for LuxXPrime, our trading activity in 2022 has so far had a positive start and we have already added 120 new securities this year, a number we are planning and hoping to build on. We aim to increase the offer available on LuxXPrime and reach the 2,000 instruments mark by the end of the year. We are currently on the verge of reaching 1,400, so hopefully we can achieve this.
Are there any specific developments planned for LuxXPrime in 2022?
We are set to launch a new project for post-trade services in Q4 this year, which will significantly facilitate post-trade activity for our members on LuxXPrime. This new post-trade feature essentially means that LuxSE will send the settlement instructions of all trades carried out on LuxXPrime to the settlement system on behalf of clients. Not only will this significantly simplify the post-trade system, but it will become an essential part of the ways in which we help our clients settle all trades carried out on fixed income instruments. Also, at the beginning of June, LuxSE Markets and LuxXPrime will move to a new EU data centre in Bergamo, Italy. The new data centre, which has high quality standards and is “green energy” certified, will considerably facilitate our members’ and prospective clients’ accessibility to our markets, at no extra cost.
