Trading tides: Insights from Pierre Schoonbroodt
As 2023 draws to a close, we sat down with Pierre Schoonbroodt, Chief Financial Officer and Member of the Executive Committee at the Luxembourg Stock Exchange (LuxSE), to take a closer look at some of the key bond trading trends from the past year, discuss what's on the horizon for 2024 and get an overview of LuxSE's latest developments on the trading front.
Moreover, our 2026 strategy is very much focused around strengthening our bond trading activity, and thanks to the support of our liquidity providers we’ve been able to do that. We currently have around 1,500 retail-sized bonds available for trading on LuxXPrime, our specialised trading platform but more importantly, we've noticed a healthy 30% surge in the number of instruments that are being actively traded. I believe that our joint efforts with EUWAX AG, our prime liquidity provider are paying off, as the bonds we make available are exactly what investors are seeking.
That being said, long-term rates are likely to remain at the highest level we experienced over the last few years, and we expect bond trading to remain an attractive option in 2024, which should benefit our LuxXPrime platform.
Given the escalating focus on ESG investing, we foresee a growing inclination among investors to incorporate ESG criteria into their investment strategies. This, in turn, will also have an impact on GSSS bond trading. Countries throughout the world have committed to reach certain climate transition objectives between 2030 and 2050, and more GSSS securities will be needed to facilitate this very transition.
Today, in terms of value, GSSS products account for 17% of new listings at LuxSE, a proportion we expect to rise in time. As the portfolio of GSSS securities expands, coupled with investors’ growing appetite to incorporate ESG criteria into their investment decisions, we should see a positive impact in the bond trading activity in the future.
In addition, the current yield environment for bonds enhances their appeal to retail investors. When you invest in GSSS bonds, you're contributing to a company that invests in sustainable, future-proof projects, indirectly mitigating your risk. Naturally, we anticipate that investors will increasingly factor this sustainability risk assessment into their decision-making process in the future.
It operates within a secure environment and allows LuxSE trading members to connect to our markets in a fast and cost-efficient manner, bypassing the need for third-party involvement. Users can have up to 10 customisable screens tailored to their specific trading requirements which makes it the ideal tool for those looking to venture into the world of trading.
Another key differentiator for LuxXPrime is that trades at LuxSE are always settled in the currency of the bond, unlike some other trading venues. All in all, I would describe LuxXPrime as a reliable and transparent trading platform, and a valuable tool for financial market participants.
Looking back on the past year, how would you describe the 2023 bond trading activity?
In 2023, bond trading activity on LuxSE increased significantly – by more than 200% compared to previous years to be precise. I think this growth was driven by various elements. One key aspect was the tightening of monetary policies by central banks in an attempt to maintain inflation below a 2% target, which set the stage for some interesting investment opportunities in bond securities. We saw interest rates reaching a 16-year high, which translated into the highest returns on bonds in the same period.Moreover, our 2026 strategy is very much focused around strengthening our bond trading activity, and thanks to the support of our liquidity providers we’ve been able to do that. We currently have around 1,500 retail-sized bonds available for trading on LuxXPrime, our specialised trading platform but more importantly, we've noticed a healthy 30% surge in the number of instruments that are being actively traded. I believe that our joint efforts with EUWAX AG, our prime liquidity provider are paying off, as the bonds we make available are exactly what investors are seeking.
What is your outlook for 2024? Can you foresee any changes or trends in the bond trading horizon?
While it's hard to predict with certainty, it is difficult to foresee a turning point in the bond trading horizon. Ultimately, it will largely depend on the central bank’s policy on interest rates, as well as macroeconomic indicators. Central banks could start cutting interest rates, which I think are close to reaching their peak in the US and Europe, but geopolitical issues will undoubtedly influence the general market, so it is quite hard to make a firm and accurate prediction at this stage.That being said, long-term rates are likely to remain at the highest level we experienced over the last few years, and we expect bond trading to remain an attractive option in 2024, which should benefit our LuxXPrime platform.
Given the increasing emphasis on sustainable finance and ESG investing, what opportunities and challenges do you foresee for traders in 2024?
LuxSE is home to the Luxembourg Green Exchange (LGX), which is recognised as the world’s leading sustainable finance platform, so naturally we place a lot of emphasis on the importance of green, social, sustainability and sustainability-linked (GSSS) financial products.Given the escalating focus on ESG investing, we foresee a growing inclination among investors to incorporate ESG criteria into their investment strategies. This, in turn, will also have an impact on GSSS bond trading. Countries throughout the world have committed to reach certain climate transition objectives between 2030 and 2050, and more GSSS securities will be needed to facilitate this very transition.
Today, in terms of value, GSSS products account for 17% of new listings at LuxSE, a proportion we expect to rise in time. As the portfolio of GSSS securities expands, coupled with investors’ growing appetite to incorporate ESG criteria into their investment decisions, we should see a positive impact in the bond trading activity in the future.
In addition, the current yield environment for bonds enhances their appeal to retail investors. When you invest in GSSS bonds, you're contributing to a company that invests in sustainable, future-proof projects, indirectly mitigating your risk. Naturally, we anticipate that investors will increasingly factor this sustainability risk assessment into their decision-making process in the future.
What are the latest developments on the trading front at LuxSE?
The most significant development is undoubtedly the launch of LuxTrader in October, a new trading tool aimed at enhancing the trading experience at LuxSE. It's a simple, web-based application that can be easily installed on any computer.It operates within a secure environment and allows LuxSE trading members to connect to our markets in a fast and cost-efficient manner, bypassing the need for third-party involvement. Users can have up to 10 customisable screens tailored to their specific trading requirements which makes it the ideal tool for those looking to venture into the world of trading.
In your opinion, how can financial market participants benefit from the LuxXPrime trading platform?
The LuxXPrime trading platform offers several advantages for financial market participants. First and foremost, the model of our platform is very reliable, as we offer a large number of bonds and firm prices for investors. We always strive to increase the number of bonds that are available for trading, and while this number currently stands at 1,500, we anticipate that it will continue to grow in the future, in part thanks to our effort to onboard liquidity providers on our platform.Another key differentiator for LuxXPrime is that trades at LuxSE are always settled in the currency of the bond, unlike some other trading venues. All in all, I would describe LuxXPrime as a reliable and transparent trading platform, and a valuable tool for financial market participants.
