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Exclusive: 26 Degrees EU first board meeting in Cyprus and how they solve the FX liquidity problem

26 Degrees, a leading Prime of Prime broker from Australia formerly known as Invast Global, has been successfully expanding across the globe, namely in Europe where it recently set up a subsidiary office in Cyprus which has secured a CySEC license to better serve brokers and hedge funds in the EMEA region.

It was in Cyprus that FinanceFeeds Editor-in-Chief Nikolai Isayev sat with 26 Degrees CEO Gavin White and the EMEA region CEO Riana Chaili to discuss the subsidiary’s first board meeting, as well as other topics, including exciting product news in the pipeline, the role of 26 Degrees in helping brokers move away from an internalization-focused model, and the evolving FX prime brokerage sector.

New 26 Degrees milestone: The first board meeting in Cyprus

In regard to the first board meeting held at the Cyprus office of 26 Degrees Global Markets EU, the executives provided a detailed overview of the key takeaways and highlighted the seamless integration of international standards and local achievements under Riana’s leadership.

Gavin White emphasized the professional conduct and effectiveness of the Cyprus team, noting, “The team here is very professional and it came across in the board meeting. It showed the sort of things that we need to address in the Cyprus to help us achieve our goals for the group globally.”

Gavin praised the contributions of the new non-executive directors and the established team in Cyprus, underscoring the high quality of discussions and decisions made: “Like I said, it was very encouraging that the non-executive directors that we’ve chosen from Cyprus, who are very experienced, were really great at contributing to our discussions and some of the decisions.”

Riana Chaili, CEO of EMEA, noted the importance of having the board physically present in Cyprus, which facilitated direct engagement and enriched the discussions: “I think the most important thing was the strategic alignment between our parent entity and us, and as Gavin said, the non-executives are not exactly part of the sector. That gave us some very valuable feedback.”

The executives collectively portrayed the first board meeting in Cyprus as a milestone that not only celebrated Riana’s return from maternity leave and her leadership, but also marked a pivotal point in aligning the company’s global strategy with local execution.

Physical presence in Cyprus has been a game-changer

As mentioned above, 26 Degrees set up a subsidiary office in Cyprus which secured a CySEC license in 2023. Nikolai Isayev asked about the response from brokers and hedge funds to their establishment in this notable European financial hub.

Gavin White detailed the positive impact that securing the CySEC license has had on their business, especially regarding the local and regional market’s reception. He explained the strategic advantage of being based in Cyprus, known for its robust regulatory framework, which enhances the company’s reputation and client trust: “It’s been fantastic. The fact that we have shown commitment to Cyprus has been taken very well by our Cypriot based clients and clients around the region as well. Cyprus is very well regarded in terms of its regulatory regime. Like everywhere, it has improved over the last 10 to 15 years but it has now set itself as a very reputable place.” Gavin also emphasized the high quality of the local workforce, which he described as world-class, particularly beneficial for the brokerage industry.

Riana Chaili, CEO of EMEA for 26 Degrees, highlighted the strengthened relationships and new opportunities fostered by the new Cyprus office. “I think the overall feedback was incredibly positive from everyone, because apart from the license itself (an extra layer of protection for them), I think the most important thing is our presence on the ground,” which has opened doors to many more local offices.

26 Degrees helps brokers analyze client flows

In the interview led by Nikolai Isayev, a key discussion focused on the evolving role of the company in assisting retail brokers with risk management and hedging, as they transition away from an internalization-focused model.

Gavin White explained the shifting landscape: “It comes and goes with the retail brokers as the market changes, but the trajectory has been that a number, particularly smaller to medium brokers, have been struggling with some of the moves that have been happening recently and have been externalizing more than internalizing.”

26 Degrees assists these smaller to medium brokers in analyzing their client flows to determine which trades should be internalized and which should not: “Obviously when they’re doing that, that’s exactly where we can come into help. We can help them analyse their flow to see which flow they should be internalizing. And then the flow that they shouldn’t internalize, we construct bespoke streams of liquidity for those particular clients.”

Furthermore, Gavin emphasized the sophisticated technology and expertise at 26 Degrees, which enables the firm to provide detailed analysis to assist brokers with managing their trading flows effectively: “It’s all about tagging client flow, analysing that flow, and then giving that information back to our broker clients and ensuring that bad flow coming through isn’t being internalized by the broker and hurting them, but that it also isn’t hurting the liquidity that we’re providing them. We have different ways to try and manage that bad flow with our liquidity channels.”

Riana underscored the technological edge and client-oriented service that 26 Degrees offers, which supports brokers in implementing more sophisticated risk management strategies: “We do have very solid technology that definitely supports more advanced risk management, which maybe wasn’t the case in the past, and is not the case with some other liquidity providers.”

How 26 Degrees solves the FX liquidity problem

FinanceFeeds asked about the evolving challenges and opportunities within the prime brokerage sector, particularly in the context of increasing regulatory pressures. Gavin White articulated the landscape of prime brokerage and how regulatory changes post-Global Financial Crisis have significantly impacted banks. He explained the genesis and intent behind the company’s strategic positioning:

“Our business is a purpose-built business to go after an opportunity that we saw 10 years ago when the Global Financial Crisis led to the banks being too big to fail and being bailed out by public money. Nobody wants that to happen again. The result was the strictest bank-focused regulations we’ve seen in a hundred years.”

He elaborated on how these regulations have forced banks to reassess their client portfolios, particularly affecting how they manage smaller clients due to capital requirement increases: ” Basel III and IV accords require the banks to hold huge amounts of capital in order to provide prime-brokerage facilities. So for the last 10 years, they’ve been going through their client base and off-boarding the clients that are too small and not doing enough to justify the capital they have to hold.”

Gavin pointed out that as a non-bank, 26 Degrees does not face these stringent capital constraints, which allows them to service these smaller, yet commercially viable clients that banks are now turning away: “As a non-bank, we don’t have those capital requirements and we can commercialise those small to medium clients that the banks are offloading. What we’re seeing now is that it is expanding, it’s rapidly gaining pace.”

He also touched upon recent industry shake-ups that underscore the vulnerabilities within the traditional banking sector and how these dynamics are likely to spur further tightening of regulations: ” We’ve seen one of the largest and most respected investment banks in the world, Credit Suisse, fall over as a result of one prime broker relationship with one hedge fund. The regulations are not going to be watered down any time soon. In fact, they’re likely to become stronger and stricter. That’s where we’ll see a bigger ability of companies like us to be able to take on bigger and bigger clients as the investment banks push them off their platform.”

Gavin concluded by speculating on potential strategic adaptations in the industry, suggesting that investment banks may seek new ways to retain their client relationships, potentially by investing in or partnering with entities like 26 Degrees: “I think the other thing that we’re going to see in this industry is the investment banks themselves investing in some of the ‘Prime of Primes’ because the investment banks know that they’re going through a massive transition here and they know that the clients that they are off-boarding are actually profitable for them. They’re working out ways in which they can keep those clients but not as a bank and so without giving too much away there’s a lot happening in that space.”

26 Degrees new product soft-launched

In previous interviews, FinanceFeeds learned of exciting developments within the company. We wanted to know more about them, namely the introduction of an entirely new product that has been quietly launched and tested over the past six months with some of 26 Degrees’ broker clients.

Remaining tight-lipped on details, Riana emphasized the positive feedback they have received from the market so far. “I think it’s fair to say that our clients have shown considerable interest and excitement in offering this new innovative product to their retail clients. All will be revealed in the next few weeks when we finally take the product public!

As the sun sets over the bustling streets of Limassol, the future of 26 Degrees Global Markets shines brightly on the horizon. With innovative trading products set to be released imminently, a commitment to cutting-edge technology, and a strategic expansion into new regulatory landscapes, the company stands poised to redefine industry standards.

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