Elliot Moss
Welcome to the Jazz Shapers Podcast from Mishcon de Reya. What you are about to hear was originally broadcast on Jazz FM however the music has been cut due to rights issues.
Welcome to Jazz Shapers. It’s where the Shapers of Business join the Shapers of Jazz, Soul and Blues. My guest today, I am very pleased to say, is David Mercer, CEO of LMAX Group, a global, financial technology company offering trading platforms in foreign exchange and metals and a robust market for crypto currency. Former banking executive and currency specialist, David joined LMAX Group in 2011 as the interim CEO when the Betfair-owned trading platform was heavily loss making. After a successful management buyout, David rapidly built LMAX Group into the leading operator of institutional foreign exchange and also crypto currency exchanges, with offices in nine countries and a global client base. LMAX is aiming to disrupt the industry and change the way £4.7 trillion a day is traded, particularly by providing a secure, fair marketplace for crypto currency. As David says, “Three years ago, there was zero interest from the banks in crypto trading and now one-third take market data from us. I expect two to three major banks to be trading crypto with us by the end of this year.”
It’s very nice to have you here. How are you?
David Mercer
Good to be here. Thanks for having me, Elliot.
Elliot Moss
It’s an absolute pleasure. The fintech world, David, when we started this programme in 2012, fintech was but a glint in the eye of somebody. Tell me in your own words what being the CEO of a big fintech business is really about. What do you think about on a daily basis, before we get into the nuts and bolts of what LMAX is and how you’ve created this beast?
David Mercer
I think fintech, I mean every company in the world now really, in financial services, has to be fintech. I mean, we are all technology enabled but in terms of you know what I think about, what keeps me awake at night, it’s actually quite simple. You know, number one: Does the technology work? Number two: Is it fast? And number three – you never quite get to number three: Is it sexy? Right? So, if you’ve done all the: Does it work? Is it up and running and is it quick enough? Then after that, you can get to the bells and whistles around the edges and make it sexy but you spend most of your time focussing on number one and number two.
Elliot Moss
And in terms of LMAX specifically, most people will politely say “Oh yes, yes, yes. My friend David. He’s in the fintech world. He deals in big numbers, lots of zeros. I don’t really know what he does but it’s clever.” In your own words, if you were explaining it to me, who knows a little bit, what would you say LMAX actually does?
David Mercer
Yes, so don’t worry, I mean, I’ve had that most of my thirty-odd years working career. It’s the worst on a golf course when someone says, “What do you do, David?” so, look, primarily we operate five exchanges globally, mostly in foreign exchange or the currency markets and the last one we did is in crypto which is, of course, at the forefront of everyone’s mind at the moment. More or less, we match buyers and sellers that want to trade euros for dollars. It’s not much different so when I’m on the seventeenth and someone asks me that question, it’s more or less a big version of going to the Bureau de Change. The difference is, we don’t charge you those rates that you see at the airport or the high street Bureau de Change so, we trade many, many billions every day, 25 billion, and the spread is shall we say, ‘waffa-thin’. To give you an idea, the Bank A will trade with Bank B and the difference between the buy and sell price would be $10 per million and get a very small part of that $10 for every trade. Whereas, if you go to the Bureau de Change and you are doing 500 quid, the Bureau de Change probably tries to make 25 quid on the 500.
Elliot Moss
But obviously the game in town, is the volume.
David Mercer
Correct.
Elliot Moss
And the point is, the more people you have then the more the slithers add up to less than a ‘waffa-thin’ sized profit, hopefully hurtling towards around £90 million of profit this last year?
David Mercer
Yeah, gross profit should be… dollars, I wish it was pounds but we’re getting there, $90 this year. Million dollars.
Elliot Moss
As I said at the beginning, David, this is a… it’s an unusual position, you took over a business in 2011, ten years ago now, and it was losing money and you were suddenly thrust into a pretty serious management role. Before we talk about that specific moment, all the jobs that you did leading up to that and whether it was the EY training programme at the beginning of the career or the work with Credit Suisse or the various roles that you had at different companies, could you have done the takeover? Could you be sitting where you are now without having picked up all those chips as it were, along the way? What did you learn before you were thrust into the big CEO role?
David Mercer
I mean definitely not but you don’t know that at the time, probably twenty years ago I thought I could have done it. Someone said to me recently, because you know we get to that age Elliot and everyone’s going “Ah, you know, what’s next? Are you going to sort of take the foot off the gas?” and this gentleman looked at me and says, “You are doing exactly what you should be doing now, aren’t you” and he’s right, I mean, I sort of compartmentalise my career into three decades, three chapters, and look at the first decade, none of us knew, it was a case of getting your head down, working hard and learning the business of capital markets. I didn’t necessarily know I would be any good at it. I didn’t know if I would like it but it turns out I was okay and I did quite like it so, I really learnt my trade if you like in the first decade and that was in banking. And in the next decade, of course, you know you get into your thirties, you have aspirations of grandeur, maybe you want to run more of your own show and not just be an employee so you go out and I did various roles there, I left capital markets for a couple of years as well, basically learning how to run a business and if you like, learning how to be an entrepreneur. Not being, I would say, particularly successful financially but learning a boatload about what running a business is like because when you are in one of these great banks or great big offices, you don’t really learn much about VAT returns and Tax returns and actually getting power supply into the building and looking after people, you are just doing one single function so, yeah, another decade learning how to be an entrepreneur and this opportunity came up at LMAX and although you say it was a heavy position, it was actually the easiest role I’ll ever have, in the first six months I was an interim CEO of what was effectively a failed startup and the best job I’ll ever have because the problems weren’t really mine, it was a case of, is there anything to salvage here for the existing shareholders? All the stresses and strains came after that first six months where I affectively ended up dong and MBO and suddenly you had real skin in the game and it was your company and all the problems were yours so, yeah, I think the first twenty years were a vital University along but vital University degree to do what I do today.
Elliot Moss
And the MBO, the management buyout back in 2011, as you said the first six months absolutely, I can imagine, these aren’t my issues and I can fix them, great I’ll be the hero but after the point you got skin in the game, as you said, it’s yours. Looking back now, what didn’t you know that you are quite relieved you didn’t know about what you were about to take on? And what’s revealed itself now you go “Wow, if I’d actually have understood that I probably wouldn’t be sitting here right now with a successful business.” What were those things?
David Mercer
A 100%, I mean, naivety is good sometimes, right? So, you can’t know everything and look it was very hard because you have lots of friends, I have lots of friends, I’ve done it myself, you have startups and basically it’s a big spreadsheet model and everything doesn’t go up in a straight line. So, getting the right people in the right positions, that’s really difficult and you look at people’s CVs sometimes and think “Oh that’s okay” but then they don’t perform the function for me very well or they don’t connect with the other connectors so, probably not knowing some of those deficiencies was key. Not knowing how hard it was to keep technology present, right, and up to speed, I mean that might scare me off and then in the core business, if you think about me just matching, you know, very simple foreign exchange business, matching buyers and sellers but persuading large Bank A to put a price onto your platform rather than onto another platform, obviously I think I’m the best sales guy on the planet but clearly not because some of those processes took three/four years to persuade the largest banks in the world to start trading with you so, yeah, I think the naivety of “This is a great plan. I’m brilliant. I know everything and it will probably all just work out within twelve months” I think that naivety was key so, I’m glad we stuck with it but certainly it was much harder than expected and my advice to other people out there is, don’t expect your three-year plan to be right. It does take seven. This is why, you know, at my age now Elliot, I can’t be doing it again, pure and simple because it’s seven years of hard graft and I happen to have chosen a market, a business, which operates 24-hours a day, 5 days a week, now 24-hours a day 7 days a week when you look at crypto so, you don’t get much private time, you don’t get much off time, you don’t get to go home at 5.00pm so they are your problems 24-hours a day 7 days a week so, not knowing that, probably a good thing.
Elliot Moss
Stay with me for more honesty and the revelations around naivety and the benefits of naivety with my Business Shaper today, and just, I think the words “It’s the overnight success which will take at least seven years,” bear that in mind before you jump. Much coming up from David Mercer in a couple of minutes but right now, we’re going to hear a taster from the Mishcon Academy Digital Sessions which can be found on all of the major podcast platforms.
You can hear all our former Business Shapers on the Jazz Shapers podcast and there are plenty of them there. But back to today, it’s David Mercer, he’s the CEO of the LMAX Group, the global, financial technology company offering trading platforms in foreign exchange, metals and a marketplace for crypto currency. You are talking about the seven years before David and you kind of said as much as it was tough and great that you didn’t know what you didn’t know, you were sort of, born for the role is an exaggeration but it was, there was no dissonance between you and the job. Had you harboured ideas at a young age to be your own boss? Or did it evolve through the, as you said, the three chapters where the third chapter indeed was that? You know, how young did it start that said David Mercer is going to run his own show?
David Mercer
Look, I think it was definitely an evolution. Probably, if you ask friends of mine or family, they’d say maybe because I’m, I guess, aggressive in my approach at times, direct in my approach, it might have been inevitable that I’d have to run my own show, maybe didn’t fit well into other bureaucracies out there. I would say right now, you know, I’d be a pretty poor employee so, perhaps it was inevitable but I’ll be honest with you Elliot, I mean like I started work when I was eighteen, you know, I went straight from school into a training programme at Ernst and Young, that was sort of if you like my degree, and really the first decade was about earning money and keeping your job, you know, back in the days, I used to turn up in Cabot Square which is where the bank was and there’d be queues of taxis round the corner because you hadn’t made the cut so, really the first decade I just worked hard, got my head down and tried to be a good employee. I think that was the basis of becoming a boss but I can’t tell you in my twenties I had ideas of being a boss. Perhaps as you mature through your business career, that becomes more obvious.
Elliot Moss
You also came to the UK from Northern Ireland when you were aged eleven, yeah, and I believe you got an assisted place at this very nice school in North London, which shall remain nameless unless you mention it, I really don’t mind if you do at all, it’s sort of relevant on one level but not really but is there a… I always, when I talk to people who are quote/unquote, “immigrants” in some form, do you think there’s a bit of the hunger, the grit in the oyster which is there just because of your background? Nothing to do with any… it’s not the nature thing, it’s purely nurture. Is there that or is that stretching it a little bit?
David Mercer
I think it’s there. I think it’s inbuilt, I mean, you see it in today’s economy. Very simple, the driver of having a roof over your head, having enough to eat and having enough to have nice things, if you like, that’s a very potent driver but I can’t speak from the other side where perhaps I have an inheritance so, you know I come from a working class background, that’s it, you know, my father worked in a factory for twenty five years and then lost his job when he was 58 because they closed the factory. That’s the DNA. So, in there is, if you like, an inert nature to work hard, it just so happens that I do it in an office rather than on a production line so, I think that’s the driver and perhaps what I learned all my life was a work ethic and from being a core sportsman to being what I am in business, I guess, it’s underneath all of that is the core work ethic and hunger, if you like.
Elliot Moss
And that work ethic and hunger, is that what you look for in anyone that you hire regardless of intellect and technological capability and so on and so forth or is there, is it more nuanced than that because how many David Mercers do you want walking around your corridors? You know, as you said, you’d make a bad employee. You’re not the first person to say that here on Jazz Shapers because what makes a great entrepreneur is often makes an impossible person to manage. Can you spot the grit? Can you spot the hunger? Is it important to you?
David Mercer
I think you can spot the grit. I mean, the world has changed, I think for the better. I mean, I was expected to work 14 hours, 16 hour days back in my twenties and pure and simply if I didn’t, there was a queue round the corner of another hundred thousand people who would do it instead. I think it’s proven that you don’t have to work people so hard anymore and you don’t value them by the hours they work, you value them by the work they put in their hours. But certainly when we go and hire people, we hire character, that’s key. Assuming you have you are relatively bright and you don’t have to have a PhD in Astrophysics like some of my employees do, incidentally, you don’t have to have all of that behind you but a work ethic, manners, politeness and okay, some intellect, some if you like knowledge of the segment, I think we can teach you a lot but with those core factors and the work ethic and manners being key, I think you can go far in any walk of life and certainly in financial services today.
Elliot Moss
You alluded to the fact that it’s less about hours, you know, the 14-16 hour culture and I was in advertising in the same, you know, doing the same decades as you, that first decade, and I worked, I didn’t stop working and that’s what you did and you are absolutely right now, there is a difference, it is about what you do, not how long you do it, and people demand different things. There’s another element which I want to just bring in which is the, for whatever reason I’d like to know why you feel like you, you talked about manners but if you take manners to its extreme, you feel like you are very public spirited, there’s a big charitable side to you, there’s a charitable side to the business, we mentioned the world, the Guinness World Record, rugby game that you played. Where does that desire to give back come from, David?
David Mercer
Well, actually personally, it stems from my mother, right, she can get all the credit there, I mean, to the day she died, we have to keep funding the bank account because all these direct debits came out so basically every advert, every advert that came up for helping children’s sight in Africa or this aid programme or that aid programme, she donated to all of them, right, on her pension so, there is that but also remember, you know, I come from Belfast, you see a lot of… a divided society there, I live in Notting Hill, Ladbroke Grove in London, there’s a real mix here and you see, particularly look at the kids out there, you know, and there not born bad, right, absolutely I do not believe that, they are just sometimes don’t have enough opportunity so I’d love them to have more opportunity, in fact I’m very proud this week we mentor some of the disadvantaged, if you like, children in the neighbourhood and we do this quarterly, and there are about twelve, about getting them ready for work rather than giving them a job but actually on the last cohort, they call it, we hired two and they started work here on Monday, just to give them a start in their business career. I think, you know, we can’t always rely on the Governments to do this for us, I think we have a duty, an obligation to try and help society around us and we love this society, Elliot, you know I love where I live, I love where I work and we want it to be a nice place to live and to work and if we happen to do well in business then let’s see if we can give something back to our community because we can develop the community probably better than the Governments around the world can.
Elliot Moss
And in terms of the money versus the other things that might buzz David Mercer now that he’s the ripe old age for around fifty, am I right in thinking that yes of course you’ve got financial security as long as the business is doing well and no one never knows if it will continue to do well but if you carry on investing in people and technology and all the things that you are doing, it probably will. Do these other things, the thing you just described to me, the helping other people, do they actually make you happier than the fact that you might be paid X versus X minus 10% last year?
David Mercer
A 100%. Given a fair run at it, that’s probably all I’d do. I’m fortunate in a way, when you come from a working class background, I mean, a lot of money isn’t a lot of money, if that makes sense in that I saw the happy life that my family had from working in a factory so, you don’t need millions or billions to be happy so that stopped being a driver, honestly, a decade or two ago, it stopped being a driver when I knew I could exist, when I knew I could feed myself and I knew I could have somewhere nice to live and start to help out family so, a 100% it’s more about the other things, the other people you can help, the community you can help. Of course, look I’m a competitive spirit, if I’m going to be in business, I want to be good at it and if you like, I want to win but if you are only doing it for money, I’m afraid you will fail and I’m fortunate now that that would probably be the third or fourth driver whereas in my twenties, it would have been number one because we had to exist, we had to live.
Elliot Moss
Stay with me for my final chat with my great guest today, it’s David Mercer and we’ve also got something a little special from Kurt Elling, that’s in just a moment, don’t go anywhere.
I’m with David Mercer just for a few more minutes and we’ve been talking about all sorts of things. David, your business is predicated on technology. A lot of this is to do with how you synthesise tech with the client experience as it were. You’ve also said, look, I’m ten years into this and it’s not that you are tired, you look the antithesis of tired, you are absolutely raring to go. How do you ensure that you remain at the cutting edge of technology and where it needs to play a role? What is it that you do and that people around you to make sure that you are, that LMAX is still doing the things that are making waves?
David Mercer
Yes, so that’s… we’re quite unique, that’s quite interesting. We make sure the tech never gets old. For anyone out there in technology, they’ll probably recognise these phrases, we use an agile development methodology but basically, we release code to our five exchanges every two weeks, right, and we never ride a spec, right, we stand up, myself included, and we talk about what we’re going to bill so, the tech never gets old and every time you change a bit of your code or you are adding a new feature, you end up rewriting some of the old code so that helps you to stay at the forefront. Then of course look, there is a bit of investment comes in, in terms of infrastructure. Technology improves all the time, you know this on your personal computer, right, so the laptop you thought was great ten years ago, is now defunct so that happens in my exchanges, in these data centres around the world so, every three years I’ve got to upgrade it. We just launched a new exchange, or refreshed the hardware sorry, in New York. It turns out that it’s twice as fast as the infrastructure I have in London and we’ve done nothing clever there at all, nothing different in terms of software, it was just the infrastructure is that much better so, guess what, next year I have to upgrade London and then I have to update my crypto exchange so, it’s just constant. In terms of the personal aspect to that, my CTO would do this as a hobby, he loves it. All the guys that work in infrastructure, they love hardware and the guys who run software love software. All software is, is coming up with effective solutions to business problems, they love problem-solving so, you need that passion from me to the guy who runs the infrastructure, to the guy who runs software, to always be at the cutting edge or to solve the latest problem. What I love about capital markets is that no two crises are ever the same, no two markets are ever the same so, you are always solving new problems.
Elliot Moss
And in terms of the crypto piece, you know, I for the first time have dabbled on one of the apps I have, just to see what happens, just literally a few pounds just to go, what’s happening and it’s volatile to say the least, David. Obviously, because even for a Joe Schmo like me, it’s clear that there is quote/unquote “No underlying asset.” It’s a thing and you put your money in and you kind of hope. You have said that crypto is going to be mainstream and many people are saying crypto is going to be mainstream. If it is going to be mainstream, is it going to be fundamentally super risky? Will it always be that but still mainstream or do you think there will be some kind of de-risking?
David Mercer
Yeah, look, it will become, if you like less volatile, to use a financial term and a newer parlance, less risky. It’s still very new. The White Paper was written in 2008 so, you know, bitcoin is precisely what, thirteen years old, came into the mainstream in some way I guess after sort of 2010/2011 so, ten years old. How old is gold? Right, as old as the planet but to put it in perspective, you know, the market capital bitcoin today is 10% of the market cap of gold so, what you happen in these new markets, you’ve got to have some volatility, you’re gonna have some spikes up to a high price and some drops down to really prices and if you are investor, you may not like that especially if you don’t understand it. How many of us really understand the price of gold? How many of us understand the price of oil? Did you realise that last March, people paid you to buy oil? That might seem odd, it is odd because you still put it in your effectively, you still put some of that in your car every day so, yeah, look you are gonna see these peaks and troughs, I’d advise people to look at it as a long-term horizon, don’t buy something for ten minutes if you are not happy to own it for ten years. I happen to think blockchain technology will revolutionise capital markets and it may revolutionise everything we do in our day-to-day lives but we’re still at the very early stages, you know, don’t listen necessarily to the guys who are telling you, you should put all your money into it, I would never advise that, I think people should do exactly what you are doing, Elliot, so dabble in it, try to understand it, certainly your children, your grandchildren will trade digital currencies, right, whether that be a digital pound or a digital dollar, they will trade and interact with those and probably with bitcoin or derivatives thereof so, I think dabble, try and understand it a little bit, you don’t have to understand everything about blockchain technology and I always say to people don’t invest in something which you don’t understand. People say to me all the time, some of my friends you’ve mentioned have said, “You know, David, what do you think about x, y, z stock?” Typically, my answer is, “I have no idea. I’ve never heard of it” and actually, I’m a terrible stock picker because I don’t trade stocks.
Elliot Moss
It’s been great talking to you, David. Thank you. The man who doesn’t trade stocks but the man who is running a rather successful business called LMAX. Sounds like a pretty good approach to me. Just before I let you disappear, what’s your song choice and why have you chosen it?
David Mercer
Dancing…, I almost forgot there for a minute, Elliot. So, it’s Dancing Cheek to Cheek, Ella Fitzgerald/Louis Armstrong. I have visions, as the song says, of my parents who always did once round the dancefloor, being in heaven, out tonight, dancing cheek to cheek.
Elliot Moss
That was Ella Fitzgerald and Louis Armstrong with Cheek to Cheek, the song choice of my Business Shaper today, David Mercer. When he talked about hiring people, he said, “Work ethic and manners.” The juxtaposition of the two is critical. He talked about money. A lot of money isn’t a lot of money, just remember that it isn’t the thing that’s going to make you happy and certainly isn’t his driver. And finally, the way they stay on the edge, the cutting edge, is that they ensure that the tech never gets old. Absolutely fundamental to any technology driven business and he made it sound so simple. That’s it from Jazz Shapers, have a lovely weekend.
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