Focus on Indonesia: What about liquidity distribution and prime brokerage?
“The Indonesian market has become pretty regulated and local brokerage houses can only obtain liquidity and trading lines via local and registered market makers” – Mathieu Ghanem, Head of Sales APAC & Deputy General Manager at ADS Securities.
Earlier this week, FinanceFeeds took a close look at the considerations for brokerages when approaching the retail FX business in Indonesia.
Indonesia is a vast country in South East Asia with over 255 million inhabitants, all of whom speak the same language and with a remarkably low median age of 28 years. During the earlier part of the last decade, a number of brokerages from overseas began to focus on Indonesia as a region of rapid potential growth, with several brokerages from Russia paving the way toward developing the retail FX industry in Indonesia via representative offices and introducing broker networks, alongside domestic company Monex Investindo Futures which has over 32% of the local market in terms of retail FX traders.
To further this, ADS Securities, one of Asia’s most prominent firms which provides retail and institutional services, spoke today to FinanceFeeds to explain the considerations regarding liquidity provision, maintaining relationships with the local banks in the region and where to locate offices in order to approach the market successfully.
Mathieu Ghanem, Head of Sales APAC & Deputy General Manager at ADS Securities today explained to FinanceFeeds “There are 2 distinct markets for an offshore broker like us in Indonesia but actually a lot of restrictions for both liquidity and trading lines provision that makes it difficult for ADS-like brokers to penetrate, those being the institutional and the retail market.”
The institutional market has 2 sub-categories
“The first sub-category is the banking market” said Mr. Ghanem. “This market for an offshore player like us has several restrictions. For example, the onshore Rupiah business can only be traded by onshore banks since the new regulation from the Bank of Indonesia has taken place – local entities can only trade with other onshore entities. Other barriers such as poor internet infrastructure in Indonesia makes it difficult for a E-broker like ADS to distribute non IDR liquidity electronically.”
“The only way for ADS to “tap into” Indonesia would be throughout the offshore NDF market which is mostly traded out of Singapore by a majority of foreign investors only; here both our PoP and NDF offering combine is gaining a lot of traction from hedge funds, family offices and brokers” explained Mr. Ghanem.
“The second sub-category is the brokerage market” he said. “This market has become pretty regulated too and local brokerage houses can only obtain liquidity and trading lines via local and registered market makers. Often, the big players in Indonesia do posses both the brokerage house and the market making entity that are located onshore. To contract and make business with these entities if not located in Indonesia is close to impossible – in addition domestic houses have credit arrangements that no other offshore provider can match.”
Now on the retail market side, which of course do not include any PoP solutions, several offshore brokers have been offering their services since few years now. The most aggressive of these brokers have been black listed by local authorities which had to deal with a lot of abuses – Mathieu Ghanem, Head of Sales APAC & Deputy General Manager at ADS Securities
In conclusion, Mr. Ghanem stated “De facto, regulators have advantaged local houses which leaves a smaller and different market share for offshore competitors: mostly the intermidiary business or IB business. It requires brokers to have full Indonesian Bahasa online support and material + all the other funding, rebate, emarketing and close door event services which as of today has not been the case at ADS Securities.”