FinanceFeeds speaks with Mark Chesterman on his prime of prime vision
FinanceFeeds met with Mr Chesterman to look at his perspective on his new role and his vision for the FX industry’s future from a prime of prime point of view.
Within the very upper echelons of London’s FX nerve center, long term tenures at senior executive level are very much the order of the day.
The vast, highly organized and often publicly listed companies that nestle among the world’s financial markets powerhouses represent the pinnacle of today’s non-bank electronic trading world, and comprise the some of the most astute professionals in our business.
Mark Chesterman’s leadership within the FX business is an example of this level of tenacity, his ten years at IG Group having commenced in September 2008 following his graduation from London Business School with an Executive MBA, specializing in Strategy and Entrepreneurship.
At IG Group, Mr Chesterman spent the first three years of his executive tenure as Chief FX Dealer, before becoming Head of Futures and FX in August 2011, which led to his appointment as Global Business Development Officer in 2015.
In July last year, Mr Chesterman became Chief Operating Officer of IG Group’s Institutional division, however his illustrious ten years at Britain’s evergreen electronic trading giant has now given way to a new leadership position, with Mr Chesterman having joined London based prime of prime brokerage Stater Global Markets as Chief Operating Officer.
Making the move to the non-bank prime of prime sector from a very extensive retail firm is an interesting move for Mr Chesterman, and today, FinanceFeeds met with Mr Chesterman to look at his perspective on his new role and his vision for the FX industry’s future from a prime of prime point of view.
FinanceFeeds: The move from one of the world’s most well established retail electronic trading companies after ten years in senior positions to a specialist prime of prime brokerage represents a marriage of your understanding of the operational business of retail brokerages with a vendor that now serves such firms. What will you implement at Stater Global Markets to ensure that this expertise comes through to the retail sector when providing liquidity partnerships?
Mark Chesterman: Having run IG’s liquidity from both the buy- and sell-side, I understand that the primary requirement for a retail brokerage is to have stable access to the underlying market. Risk management is critical in all financial services, and a brokerage that cannot offset their risks at any and every point in time is playing roulette with the future of their business. At Stater the platform has been built to ensure stability, but we also have fantastic agility that enables us to react to new challenges, be they regulatory or otherwise, that our clients may have. I look forward to working with the great team Stater have to further develop the platform, allowing clients to deal multi-asset with a true Prime of Prime, enabling them to take advantage across the board of a broker invested in the client’s trading success, rather than the broker’s.
FinanceFeeds: Genuine prime of prime brokerage relationships are vital in the non-bank sector, yet relatively rare as there are only a few prime of prime brokerages which have Tier 1 bank pricing and liquidity to offer to the retail sector. Do you envisage a consolidation of the non-bank sector, and if so, how can brokerages be encouraged not to go down the route of order internalization via non-prime of prime liquidity partners who do not have access to bank matching engines?
Mark Chesterman: I suspect that consolidation in the retail brokerage industry in Europe is very likely, as the costs associated with running a retail brokerage are set to grow significantly with new regulation.
However, this regulation also gives brokers an opportunity to re-visit their business model.
Internal matching and the capital costs (both working capital and regulatory capital) associated with this are increasingly unnecessary, and with a good Prime of Prime a retail broker can offset market risk cheaply, leaving them to focus on marketing to and servicing clients. This removes the inherent conflict of interest between a retail brokerage that market makes and their clients, which is a move regulators will no doubt applaud.
You use the term “genuine prime of prime brokerage”, which is increasingly apt. It’s important for retail brokerages to be aware of their broker’s business model – are they simply enabling market access, or are they tying you to their liquidity? Up-front costs are important, but hidden costs are also critical. With a genuine prime of prime broker, you can be sure that your broker is working as hard as you are to ensure the spreads are tight, the liquidity is good, the rejection rate is low / zero, and your access to the true market is unfettered.
FinanceFeeds: London’s publicly listed retail FX firms are widely renowned as the most established and reputable in the world. Can their model be emulated by smaller to medium sized brokerages if they are able to move away from the affiliate model and embrace custom platforms and choose proper liquidity partners, therefore elevating their customer base to a higher and more sustainable level?
Mark Chesterman: Their success can absolutely be emulated by smaller brokerages looking to grow, but a smaller brokerage will need to consider whether the business model should be emulated. The London listed brokers spend many millions a year on advertising to entice clients, which a smaller broker simply cannot afford.
However, the basic element for success of any brokerage can be followed – treat your clients well and the rest will follow.
Although the MT4 platform has its detractors, it has become the most popular trading platform in the world for a reason.
It is difficult for a small brokerage to ignore it. However, it is still possible to find a niche – know which clients you are targeting and how to attract them, then treat them well so they want to stay. One key way of ensuring as a retail broker that your clients know you are on their side is to make sure there is no conflict of interest on a trade – if your client does well, they will stay trading longer. These are the clients a retail broker should encourage as they are much stickier, so as a retail broker I would be working as hard as I can to service these clients well.
FinanceFeeds: What are the key factors that you consider vital for retail brokers to evolve their services in today’s very competitive market where platform uniformity has been in place for so long and differentiation is now a major issue?
Mark Chesterman: As mentioned above, although the MT4 platform is ubiquitous, it is difficult to avoid as a small broker because the market for the platform is so large. But a broker can still find ways to differentiate on MT4 – there are plenty of good app providers who can help on the platform side, for example. But a critical differentiator is client service. Help your clients to be good traders, support them in their successful trading, and they will have no reason to either move brokers or stop trading.
FinanceFeeds: Multi-asset product ranges are now becoming more important. Will Stater’s ability to get into other asset classes than spot FX and MetaTrader-friendly stocks be on the agenda? IG is well known for having a very clever retail stock platform, and Stater Global Markets has alternative asset access such as digital currency. What is the focus for getting this type of diversification into retail brokerages?
Mark Chesterman: FX is still the most traded market in the world and will always be a cornerstone of what we do.
As you suggest, multi-asset capability is increasingly important as traders look to expand their horizons. With the Prime Broker relationships we have, Stater is well positioned to grow our multi-asset product set.
We already offer CFDs and Futures, and this is something that I will be looking to broaden and strengthen, especially as we increasingly look to attract firms beyond our core market, such as hedge funds and family offices.
FinanceFeeds: Global audiences vary. Do you have a specific priority in terms of geotargeting?
Mark Chesterman: The far east is a very interesting part of the world at the moment, notwithstanding the issues brokers are having in China. We are seeing a lot of success there already, as brokers appreciate our genuine Prime of Prime offering.
For me, Europe is still a very interesting place for our industry, even with the ESMA regulations.
There will be a lot of disruption in the market, which is a great opportunity for a company like Stater that has been built to help clients by simplifying their market risk and allowing them to focus on servicing their clients.
FinanceFeeds: What is your view on the future of the retail brokerage which uses a third party platform and concentrates on marketing, this model being very much the opposite of IG Group’s ‘household name’ status with its own trading infrastructure and public listing?
Mark Chesterman: I think there is room in the market for both models. IG is a fantastic company, and has built itself over the past 40 years to be the behemoth it currently is, competing with the likes of CMC and Gain globally. However, Plus500 has grown to a huge size by being smart and nimble with its advertising. For small- to medium-sized brokers, a low-cost model which utilises third-party platforms can be very successful.
FinanceFeeds: What would you look for if you were a small to medium sized retail brokerage today and needed a good quality liquidity partner?
Mark Chesterman: In one word – Stater! We have great market access to Tier 1 liquidity, a stable platform, and, critically, are on the same side as our clients.