CMC Markets talks openly about new institutional service – Looks to dominate CFD liquidity sector

Speaking to Richard Elston today at iFXEXPO International here in Limassol, Cyprus, a great deal of enthusiasm was apparent, as with great interest he shared the ethos behind CMC Markets’ new institutional division.

Mr. Elston is Head of Instititutional at technology-led British electronic trading giant CMC Markets Plc (LON:CMCX) and has over 20 years of experience as a great asset to his leadership, having held senior executive positions at benchmark industry institutions including S&P, CQG, Saxo Bank, and IG Group before joining CMC Markets in 2015.

Just a week after launching a fully comprehensive institutional service, it was very interesting to speak at length with Mr. Elston about the methodology behind CMC Markets’ foray into the institutional sector, building on its towering experience as a retail CFD and spread betting giant.

Mr. Elston explained “Our attendance at the iFXEXPO International here in Cyprus this year is not about the retail side at all, but instead to focus purely on institutional services.”

This is particularly interesting as Cyprus is clearly a mainstay for all sectors of the FX industry, with a highly developed ecosystem consisting of over 180 brokers, technology vendors and a very well organized structure of retail firms that are increasingly requiring high quality institutional services.

With regard to where the company positions its institutional service within its corporate structure, Mr. Elston explained “Whatever we do in the institutuonal space should not detract from what we do in the retail business. What comes out of the retail world is a good opportunity to gain liquidity and to develop technology” he said.

There is a tremendous mid market gap that has been created over the years, especially since SNB, and even before that – Richard Elston, Head of Institutional, CMC Markets.

Prime brokerages have gradually gone away from their position and there is a tremendous opportunity for well capitalized brokers to go down the institutional route” said Mr. Elston.

“We are in a very good position, post IPO and very well capitalised. This is very important as firms offering institutional services to brokerages today have to be a viable place not only to trade but also to place money” he said.

“There is something that is more specific as well which is worth mentioning” said Mr. Elston.

“More specifically, what we are here to do if we are practical about it, is that whilst our experience which spans over 27 years means that we are born out of the retail electronic trading market, we are promoting our position as a CFD house, therefore our ethos is about providing liquidity into the CFD space” – Richard Elston, Head of Institutional, CMC Markets.

Richard Elston details the four elements as to what should position CMC Markets as a choice CFD liquiidty provider

“The first point is our standing as a company which has a combination of financial sstablility, good reputation, strong couhnterparty, with marked pedigree in this market place” said Mr. Elston.

“Secondly, we approach the concept of market data with tremendous transparency. Intelletcual property with respect from pricing is derived from an exchange source. When that demands that the venue or institution that we pass it to needs a royalty we are happy to do this and the market data agreemetns we have with brokerages focus on this clearly” said Mr. Elston. –

“As a result of the amount of correctly delivered market data that we have, this means that CMC Markets can facilitate the broadest range of liquidity within the CFD space for API connectivity” Richard Elston, Head of Institutional, CMC Markets

The fourth aspect that Mr. Elston considers important is the origins of the company and how its large client base can be a boon when it comes to distribution.

“Right from when we were established in 1989 until now, we are a retail company with 55,000 clients, and are global.

“Having that many clients, we have a lot of additional liquidity that we can add to the normal market liquidity. What that converts into is that there is a decent opportunity that our clients can get away sizeable positions with us that they wouldnt be able to get elsewhere” Richard Elston, Head of Institutional, CMC Markets.

How is CMC Markets structuring its solution?

“Credit risk is apparent these days for many companies, but if you go through the annuls of history, there were mainstay players such as CMC Markets, IG Group, Saxo Bank, FXCM and a handful more, but now there are brokers which have financial strength in their own geographies” said Mr. Elston.

“Imagine if there was a client where CMC Markets don’t have any presence, the chances of getting to that client could be difficult, however if we now operate by facing a bank, in for example Poland, we can do that and completely localize the service” he said.

“If I was a client in that country, I would rather have local service and it is a great way to extend our liquidity into those environments at the same time, whilst making it specific to the regions where a certain method of operating is needed to succeed” explained Mr. Elston.

“We have taken a very international approach, and should be very well positioned to be the number one provider of CFD liquidity.”

Which will CMC Markets provide institutional services to?

Mr. Elston said “I think it is very important to be strategic with who we operte with. Actually that applies to all companies in all markets. Being careful who to onboard is a good measure so that risk provisioning is not damaged in any way” he said.

“A retail aggregating broker would be a typical customer for this aspect of the API. We are connected to all bridge providers and integrators, but also if the end system understands FIX protocol then we can connect to it, therefore it is platform agnostic” said Mr. Elston.

In terms of services, we offer white labels which are aimed at institutional IBs. We also have a grey label product which is neutrally branded with no CMC logos, threfore a traditional IB gains more ownership and empowerment.”

The white label solution is like a broker in a box, in that we go to the client, and we establish the entire system and feed, and it would be branded according to the specific industry sector that they are in.”

“There is a lot of regulatory risk these days” said Mr. Elison, and in concluding, he stated that “an API based solution is more scalable for introducing brokers and strategic partners.”