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LSEG CEO says weak links in markets exposed by recent volatility

Reuters NEXT Newsmaker event in New York City

By Peter Thal Larsen

(Reuters) - London Stock Exchange Group Plc Chief Executive David Schwimmer said on Thursday that large spikes in volume associated with algorithmic trading have worsened recent market volatility, exposing weak links in the global market infrastructure.

"What that means is when there's an event ... some kind of crisis like the onset of COVID in the spring of 2020, you see massive moves in the markets very quickly, and a lot of the plumbing out there cannot handle that," he said in an interview at the Reuters NEXT conference.

At the onset of the COVID pandemic in March 2020, some banks asked LSEG to close its markets for a day or two so they could catch up with post-trade settlement and processing, he said.

"We didn't do that, obviously, because it's important for us to keep the markets open and maintain that functionality, but I mentioned that because it's where there may be some progress made over time," he said.

Volatility across markets has soared this year, as global central banks have jacked up rates to grapple with the worst outbreak of inflation in decades, sparking wild fluctuations in the prices of currencies, stocks and bonds.

Equity markets around the globe have been particularly turbulent. One-month volatility for the MSCI world equity index, which tracks shares in 47 countries, averaged 19 this year, compared with an average of 11 for the prior 10 years, according to Refinitiv data.

Another area of concern is in the private equity and debt markets, which have grown quickly in recent years, while using lots of leverage, but with very little transparency, he said.

"A lot of people are sort of wondering and watching, how does that play out as rates continue to go up," he said.

Regarding cryptocurrencies, Schwimmer said it is not surprising that the zeal around the assets has died down as interest rates are going up, as the recent explosion in enthusiasm around crypto can be seen as a byproduct of excess liquidity in the financial system while interest rates were in negative territory.

Cryptocurrencies have also been under pressure this year after a string of high-profile bankruptcies at crypto lenders and exchanges, the biggest being FTX, which collapsed after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal. FTX's failure has left an estimated 1 million creditors facing losses totaling billions of dollars.

The price of bitcoin is hovering around $17,000, down about 75% from its record high of around $69,000 in November.

LSEG has taken a cautious approach to crypto and does not provide digital asset trading, but it provides data on digital assets and Schwimmer said the exchange operator is "open to doing a lot of work with the underlying technology."

"So not crypto trading, but I'll call it digital technology, whether that's digital ledger technology, whether it's digitization in other forms, there are a number of different aspects that can benefit from improved digitization," he said.

LSEG’s purchase of Refinitiv, which it bought for $27 billion in 2021, turned the 300-year-old exchange into a major market data player, but outages and sums invested in integration raised concerns among some investors.

Thomson Reuters, which owns Reuters News, has a minority shareholding in LSEG.

(Reporting by Peter Thal Larsen and John McCrank in New York and Noor Zainab Hussain in Bengaluru; Additional reporting by Saqib Iqbal Ahmed in New York; Editing by Matthew Lewis)