The final scene from Clockwork Orange, and the rising stars in the Far East. We take a look at the way that a Western broker can uproot and redefine itself in new, emerging and unburdened Asian markets, with the correct infrastructure and local knowledge
The consistent pressures that have manifested themselves within the western world’s FX industry over recent years include fierce competition from firms providing similar products, demand from end users to keep the cost of execution down to a very low level, and regulatory turbulence that ranges from very expensive reporting responsibilities to perceived lobbying activities from the listed derivatives giants of London, Chicago and Frankfurt.
In total contrast to this dynamic, which has manifested itself at retail and institutional level with the banks curtailing counterparty credit to a degree which has made a mid market gap for liquidity become very pronounced, filled by equally competitive new entries into the non-bank institutional sector, the Chinese FX industry is free from such burden, and the enthusiasm and highly structured powerhouse that is now China, has led to some degree of concentration on South East Asia as a wider region.
Today, here at the iFX EXPO International 2017 FX industry conference hosted and produced by ConversionPros, the global vendors and providers of technology and liquidity to brokerages in various regions are looking closely at how they must, along with their existing and future clients, evolve their solution to take this into consideration.
FinanceFeeds was joined by Nicc Lewis, CMO at Leverate, who elaborated on this and how the move toward the Asia Pacific region has expanded beyond the efficient and developed powerhouse that is China.
“We have a strong focus in the East and are actively recruiting new clients in China, and have exanded in Malaysia, Thailand, Indonesia, Sri Lanka and the Phillippines” said Mr Lewis.
“Currently, Phillipines has very untouched and only just emerging market. Imagine if you could focus on a country where no products exist yet. This provides tremendous opportunity however it is a very long term strategy to build into a market that has only just begun to gain any awareness or entry into the FX market” said Mr Lewis.
“We think, and we also see that brokers that are based in the West are being squeezed so hard due to marketing cost, regulatory cost, restrictions on margins they can take and perhaps other factors that are common, will have to look outside traditional markets and those are the firms that are looking to move East” – Nicc Lewis, CMO, Leverate
What needs changing in order to localize?
“Retail firms that are looking to move eastward need to focus on one particular country to begin with, hire one local person with extensive knowledge and connections, and from there begin to adapt operationally. The eastern market is much more dominated by IBs and has a very B2B nature, so the first hire with the connections is the most important one and from there the company can expand” said Mr Lewis.
“The difficulties that some companies come across include providing local support and payments. We get asked alot how we can help in certain areas. Customer support is one thing, it need to be local therefore a small investment would be required in order to grow support services, and actually although there is a large dialog about payment channels, the payment segment is relatively simple if in house knowledge exists” said Mr Lewis.
“The more difficult stuff is the technology provision. We invested the hard work in local hosting where it is needed, so a broker can be up and running fairly quickly, and we can explain what to do with regard to website. For example, if a company is going into the Chinese market, it will need to have a site free of all Google and Facebook analytics, and instead the developer would need to put in the Baidu analytics.” – Nicc Lewis, CMO, Leverate
“Getting the infrastructure and localized staff in place is the first cornerstone” explained Mr Lewis. With regard to ensuring that the correct payment channel that has widespread coverage in a specific region is in place, if a company hires local specialists in operational positions, the knowedge would be with regard to which payment providers work in that region” he said.
Money management offering and IB solutions.
“Interestingly, establishing a brokerage in a relatively untouched part of the Far East, for example the Phillipines, is about allowing local companies start the market. Some brokers from Malaysia and Indonesia are crossing border and taking reasonably relevant knowledge with them. It is still too early for many Western firms to go there but as I mentioned earlier, that region will likely become an important market.”
“Currently, Indonesia is the second biggest market in the region outside Mainland China, but it has low value clients and is a notorious region for now outmoded malpractice such as bonus abuse with smaller retail brokers” said Mr Lewis.
“Malaysia is now a well developed market, and hassolid IB networks to provide ongoing traffic. Another good region is Thailand. It is important to consider that when a former low income nation has economic growth, even if it is based on tourism, the whole country then begins to achieve a growing income. When a developing country makes that jump toward middle income wealth, there is not an understanding of where to use that wealth which is where the portfolio managers come in using MAM accounts” – Nicc Lewis, CMO, Leverate
Mr Lewis considers that a simple way to achieve a low cost and straight forward means of establishing a type of portfolio management in new regions in the APAC area was to offer Social Trading and ringfence the money manager and his clients as a micro community where the leader is the master, and the others are copy traders, where the trades execute automatically according to the lead traders’s pattern. He can then give front end access to see how they are performing in the market.
“There is most certainly a lot of business from the east. It is a lower value but much larger volume and is growing, also the price people are wiling to pay for quality is growing. One of the most fascinating things about it is that China, for example, has no regulation but somehow the brokers themselves have realized that they have to show their clients that they are doing STP to gain the trust with traders, so its like self regulation.
“By contrast, in the west, the firms are being slapped down. Regulation in europe reminds me of the final scene in Clockwork Orange. In the end the final power will be to find the one trustworthy broker” said Mr. Lewis.
Concluding, Mr Lewis detailed that the selling points to a broker in the Asia Pacific region include good quality execution via a proper liqudity provider, no internalization at retail broker level, reliable technology and low latency. Inside China there is still a check on all data by the government-controlled internet system which creates a degree of latency but not to the same degree as from the outside, therefore whilst a delay exists, Chinese traders are keen to ensure that broker latency does not compound this problem.
“The Asia Pacific region is still very much a face to face business” he added. “There is a growing digital sector, and media is very good quality and widely distributed in China, the nation is massive on mobile and the users are all using the latest device” said Mr Lewis.
“I’ll leave you with this figure. On our corporate website, over 80% of the traffic in China is mobile. We learned in China to have a dedicated mobile website otherwise the main website will not be sustainable.”
Featured Images: Ben Richter, Head of Institutional Sales at Leverate, and Nicc Lewis, CMO, Leverate