To MetaTrader or not to MetaTrader? That is the question… among futures exchanges

Whether the extremely overt interest by the vast and long established futures and equities brokerages and derivatives exchanges of Chicago, Singapore and London in attempting to lure retail traders over recent years has been driven by the inability of such large venues which execute massive volumes of every manner of asset class via a central counterparty to offer quick, cheap and effortless access to ‘quick fix’ markets such as spot FX that the retail OTC brokers have made such a dent in the listed venues’ retail client base, is a matter of debate.

Indeed, it could be that those thwarted by regulatory coercion in the form of Australian and European leverage restrictions which have impinged the CFD market were indeed not quite seeing the full picture in that instead of fighting with the exchanges in a noble but futile David and Goliath struggle of efficient, cheap and quickly developed retail b-book solutions against the inevitable stature and might, and in this case business superiority of the established exchanges from where genuine global markets are accessed.

Therefore, instead of the exchanges attempting to lobby regulators in order to force down the OTC derivatives sector and the OTC firms looking to out-execute the exchanges by fervent b-booking, why not fully embrace the synergy between the two and work together?

Thankfully, the gulf is gradually being bridged as a matter of necessity, as the OTC firms and respective vendors now begin to fully embrace the synergy between the exchanges and realize that retail traders need full access to global markets, and that the b-book is finally fully understood by the vast majority of well educated traders in first tier jurisdictions.

A turn of events, in that case, for Singaporean futures brokerage Phillip Capital, which has once again begun to look closely at the MetaTrader-focused audience and advancing its remit.

FinanceFeeds spoke this week to a senior executive at Phillip Capital who explained “We now connect our Asian affiliates to futures and equities, and a few brokerages in Europe into futures that offer MetaTrader and are putting some other Fintech options together to give more flex to these brokers into regulated exchanges in addition to MetaTrader 5”.

That is a very interesting direction by Phillip Capital, especially given the company’s ‘shall I, shan’t I’ approach to offering products to the retail market via the MetaTrader platform.

Back in June 2016, just six months after Phillip Capital CEO Teyu Che Chern met with FinanceFeeds in New York to reveal exclusively that the Singaporean futures giant was about to enter the retail FX sector in North America, the company has decided to discontinue its service to retail FX traders.

The company has today issued a notice to its clients that it will be discontinuing retail FX activities following a notice from the Securities and Exchange Commission (SEC) which has dictated that no SEC broker dealer shall offer retail FX from July 31, 2016.

Phillip Capital made the astute move of partnering with some prominent exchanges in Chicago in order to approach the US exchange traded futures market, and at the same meeting in New York, IntercontinentalExchange senior executives detailed to FinanceFeeds how this would work, and how IntercontinentalExchange had planned its acquisition of SMX in order to reciprocally approach the Asian futures market from within America.

Following the company’s decision to enter the retail FX market, FinanceFeeds reported that the company had intended to provide trading facilities via a wholly owned MetaTrader 4 brokerage to clients across North America.

Indeed, Phillip Capital’s corporate mainstay is exchange traded futures, however it had high hopes for its entrance into the retail FX market and a very strong capital base behind it.

On June 1, 2016, Lynette Lim, Co-CEO of Phillip Capital has stated

“The SEC’s decision is a big disappointment for us, as we had recently begun the soft launch of our forex offering,” said Lynette Lim, Co-CEO & Director of PCI. “With the financial stability and resources of the PhillipCapital Group, we had all the criteria to be a strong player in the forex market, where there has only been a handful of incumbents in the last six years.”

At that time, the US division of the company, Phillip Capital Inc, was dually registered as a broker dealer and forex dealer member, and would no longer be allowed to offer retail forex to US customers from July 31, 2016.

In response to the notice by the Securities and Exchange Commission, Phillip Capital Inc. therefore had to stop all activity for the existing OTC forex accounts and were not able to open any new forex accounts effective June 1, 2016. The firm also became unable to offer forex to retail customers of Introducing Brokers. Phillip Capital at the time said “This is obviously a big disappointment for us, as we have only just started the soft launch of our forex offering” as the company fully understood the importance of offering their expertise to OTC retail clients, and perhaps long term it would have expanded across both the listed business and retail as the client loyalty progressed.

Back in 2015, during the period at which Phillip Capital was conducting its foray into the US market, where it had an office in Chicago with 25 staff, echoed  the firm’s corporate drive to bring Asian exchanges to within easy reach of American traders, and the move toward retail FX was something which Mr. Che Chern explained to FinanceFeeds was on the agenda for the wider global audience outside the US during a private meeting with FinanceFeeds on November 18 2015.

In Asia, and particularly the company’s native Singapore, Phillip Capital is a vast company with a 45 year history, and has, among other aspects, a commercial relationship with ICE. Phillip Capital’s Singapore headquarters is a clearing member of ICE Singapore, whereas Phillip Capital’s Chicago division is a clearing member of ICE in Chicago.

During the meeting in New York some six years ago Mr. Che Chern explained to FinanceFeeds the company’s plan to enter the retail FX market. “Forex is certainly on the agenda on an off-exchange basis here in the US too. Philip Capital became an FDM and broker dealer. “In other parts of the world we have OTC FX business, with presence in UK, Australia, Turkey, Japan, Hong Kong and Singapore, whereas our futures business is largely centered around our operations in Japan, Hong Kong, Thailand, Singapore, Malaysia, Turkey, India, Dubai and Indonesia. ” said Mr. Teyu Che Chern.

Now, clearly Phillip Capital has maintained this important synergy across the Asia Pacific region, and is expanding it, highlighting the importance of going multi-asset for retail traders in this region.

There is a distinct methodology which needs to be taken into account in order to conduct the full integration between multi-asset exchanges and retail clients in the vein that Phillip Capital have been an advocate for many years.

Bearing this in mind, it is FinanceFeeds understanding that Phillip Capital uses it only for FX and CFDs from what I see on their website they also have their own platform, which is called POEMS, that certainly appears quite mature. It is entirely possible that the firm only uses MetaTrader 5 because of the big community of traders that familiar with it, rather than its multi-asset capability which is extremely limited.

Given the pivotal position that now exists in this industry, a full multi-asset solution is required in order to bring the global markets to clients.

Speaking to FinanceFeeds today, Roman Nalivayko, CEO of TraderEvolution Global, a platform which does exactly that, said “We see the importance in the efficient combination of domestic and international markets, from the user experience and operations point of view.”

“This is one of the TraderEvolution platform strengths. Using our product brokerage company can easily pack together equities from the local exchange and international ones. It is more simple with CFDs products but when it is about cash equities, lots of specifics have to be handled by the trading platform. Serving clients in different regions allows us to aggregate experience and build the most universal trading software that brokers use in order to migrate from the fragmented technologies to one single multi-market platform” concluded Mr Nalivayko.

Where equities and futures exchanges see the value of keeping the retail trader engaged and expanding their remit toward them, it is important that they also take the lead in re-educating them to use multi asset platforms, rather than kowtow to an entire network which has come about due to affiliate networks placing novices with b-book OTC firms.

Well, these traders are no longer novices, and the b-book OTC firms know that they have to expand their remit toward multi-product. Phillip Capital’s dilemma in wanting to do this but feeling hamstrung by having to use MetaTrader is a case in point.

The most interesting area here is that Torben Gregers Friis, Managing Director for EMEA region at GCEX explained to FinanceFeeds on Friday last week “People in the know have informed me that this week, MetaQuotes will hike rates for all new white labels from $1000 a month to $4000 a month, starting from March this year.”

“Obviously it is only a matter of time before they apply this increase to all existing customers. The FX market will in my opinion experience another consolidation soon and this time it will be driven by vendor cost inflation which will potentially wipe out the smaller firms” siad Mr Gregers Friis.

Let’s do our bit to move everything forward and see the OTC and listed derivatives firms work together toward a holistic set of products for a wide range of clients.

The recent surge in listed contracts being traded on TAIFEX exchange in Taiwan should be just one of the many wakeup calls.