“Mind The Gap!” – The life and times of a man on the move Episode 11

Parliamentary mud slinging is not a concern for FX, Don’t make a mess in Cyprus, Mind those Google ads, and what on earth is going on at Plus500?

In this weekly series, I look back on what stood out, what was bemusing, amusing and interesting during my weekly travels, interesting findings within the FX industry and interaction with an ever-shrinking big wide world. This is purely observational and for your enjoyment.

Monday: Cacophony that can be heard across the English Channel

The walls of the Houses of Parliament may well be so thick that it took Guy Fawkes several years of plotting which included destructive planning via the use of phosphorous and other such pyrotechnics all those hundreds of years ago, but this week’s cacophony that resounded across the House of Commons relating to what is becoming a somewhat tiresome subject, that being Britain’s imminent exit from the European Union.

Prime Minister Theresa May on Monday faced criticism for her pandering to what the left are calling “Brexiteers”, those being avid proponents of a hard Brexit with or without a concrete trade deal with Europe, and the more capital-C Conservative members basically want everyone to just get on with it and stop pandering to the socialists in Brussels which are exactly the forces of economic destitution and misalignment that the British electorate wanted to get away from when voting, democratically, to leave the EU.

Boris Johnson, who is a journalist first, and a politician second, has taken to the Telegraph’s front page saying that Prime Minister May’s “Chequers Plan” means going into battle with the white flag fluttering, stating that Britian will get “diddly squat” – a British euphamism for absolutely nothing – from the EU on its exit.

“The Scandal of Brexit is not that we’ve failed, but that we have not tried” he said.

Come on Boris, this is FX, not The Spectator

As I took note of this, and admittedly I very rarely take any note of political inward-lookingness when it comes to Brexit, because it is really now a two year long road to nowhere, and all of the small trifling details are not of great interest, as I stand firmly by my original view that Britain is FAR better off out of the European Union for many reasons.

The thing to do in my opinion is to focus on the black and white commercial effect that the Brexit will have on our industry.

The administrative matters now form the lion’s share of Brexit-related political discussions, and today represents a day in which the City of London’s financial sector along with the City of London Corporation (the local government authority for the Square Mile) have been engaging in diplomatic meetings in order to take control of the City’s destiny once the shackles of the European Union have been removed.

Indeed, the shackles of cost and bureaucracy as London’s Square Mile funds the vast majority of an entire continent’s flagging and lethargic economies, its ultra-modern, highly skilled and plate glass enterprises a bastion of business suit work ethic and leading edge technological prowess compared to mainland Europe’s corruption, siesta culture and absolute lack of modernity or industry leadership, has been shrugged off, however due to London’s absolute dominance over every other city in most areas, European investors and institutions rely on it for all manner of services, both retail and institutional.

This, therefore, is a double-edged sword when it comes to navigating a Britain-European Union relationship post Brexit, and as a result, the City is looking exercise its control via diplomatic engagement with EU Member states.

Led by TheCityUK, which is a private-sector membership body and industry advocacy group promoting the financial and related professional services industry of the United Kingdom.

TheCityUK is often referred to as the financial sector’s most powerful or “most prominent lobbyists with close links to the UK Government and to policymakers in Brussels and Washington.

Although ‘The City’ in the UK usually refers to the City of London, one of the world’s foremost financial centres, the organisation also represents the industry throughout the UK.

As a business-led body, TheCityUK is distinct from the City of London Corporation which is the local government administrative body for the district of London which contains the traditional heart of the city’s financial services industry.

Its board of directors and advisory council includes various senior executives from some of the largest FX interbank dealers in the world, including John McFarlane, Chairman of Barclays Bank, who presides as Chairman of TheCityUK.

The IRSG report, compiled by former minister Mark Hoban and law firm Hogan Lovells, proposes a managed divergence model that its authors believe will maintain the highest possible level of access after Brexit. Although it has been designed for financial services, it can be applied to a large number of professional services and other sectors.

Hargreaves Lansdown is the largest financial services firm in the UK and has its own proprietary platform. Peter Hargreaves, who co-founded it in 1982 is an avid Brexit supporter

“Across Europe, people are starting to think more carefully about it,” Hoban said. “The intellectual debate is now in our favour because there is no credible alternative. But ultimately it will come down to whether they put politics or economics first. I hope they would seek to minimise the economic costs ultimately.”

Alongside this, we have very vocal pro-Brexit leaders in the FX industry – those being Peter Hargreaves, one of the founders of Hargreaves Lansdown, Britain’s largest financial services company, and Peter Cruddas, founder and CEO of publicly listed British FX and CFD company CMC Markets.

Yes, some firms  in the UK may operate their European entities from Cyprus if they are a retail FX firm, but they will go from strength to strength in London, run expansionist global operations from there, free from the burden of European restrictions emanating from a continent which hates capitalism and enterprise and has no large scale customer base anyway.

Such firms will just service the few EU clients they have from Cyprus and then go across the world from London as the powerhouse goes forward. It will be like a rocket propelled satellite having a lead weight taken off its base.

Tuesday: Cyprus business welcomes those from overseas. Or does it?

Speaking to a colleague last week, the conversation moved to a recent house move undertaken by said colleague, on the island of Cyprus.

Cyprus is, for better and for worse, a central linchpin in the retail FX business, and is home to over 150 retail FX brokerages, many of which conduct their business in other parts of the world such as the Asia Pacific region, Russia and the Middle East, and as a result, Cyprus, an island with only 800,000 inhabitants, has a disproportionate affiliation with retail FX and its entire component structure, compared to its overall size and population.

Part of this was the result of decisions by the Cyprus government to further the island’s favor with overseas business people and to attract international investment to the island, something that Cyprus has long relied upon and benefited from, whilst overseas firms gain access to European markets for a reasonable price.

Thus, the entry barriers for establishing in Cyprus are low, the taxation favorable and as a result of over 10 years of retail FX dominating the entire spectrum of lifestyles in Limassol, there is access to a talent base that knows the retail industry, be it marketing, sales, platform development and customer retention, very well indeed.

Cyprus has polarized opinions with its remit to ensure that the FX business – largely contended by retail white label brokerages, with a few very large established firms making up the majority of business on the island in that some consider it an excellent route to prosperity for a small island, and some consider it a pariah and that its loosely regulated, easy entry/easy exit presence has no place in Europe.

As is CMC Markets founder & CEO Peter Cruddas, taken here by FinanceFeeds at the launch of the firm’s Shanghai office. World business, here we come!

Whichever leaning is relevant, it is not in despite that most FX industry professionals spend a lot of time either living in, or visiting Cyprus, which is also good for the country’s economy.

On Tuesday, however, I became aware of a bit of resistance that has built up among one particular industry sector that supports the FX business in Cyprus, that being residential property letting companies and private landlords.

My colleague who moved into a very nice, fully renovated apartment in Limassol told me that the owner of the property had demanded to see passports to prove nationality before agreeing to let the apartment. The answer was “I am staying here for a while from England, as I’ve just been sent on a 6 month secondment”.

Being a new arrival in Limassol, this particular person had no previous records there, and Cyprus being so small, is a place where personal reputation counts, as it is the size of a large village. He insisted “I am English” and despite having a clear English accent and a distinctly English name, the landlord demanded to see original documentation.

On presenting them, he said “I just wanted to check you are not from Israel or the Middle East.” Thus, I then did a bit of research among property letting firms, to find that numerous outstanding rental payments, damage to property and generally abusive contractual relationships have damaged the trust of local Cyprus based property leasing firms and private landlords to the point where it is becoming very difficult to rent an apartment unless you are Australian, British, Canadian or American.

If this is true, it is a very sad state of affairs. How can clients trust a firm that has non-payers of rent on its payroll, and how can Cyprus continue to improve itself if it welcomes people who do not respect someone else’s country.

Come on guys, get your checkbooks out, and whilst your at it, a bit of glass cleaner and a feather duster! 😉

Wednesday: Google has quietly updated its DFP system!

There is none so loud as Google when it comes to product placement and its remarkable all-encompassing systems that pretty much dominate the internet and centralized control systems for the home.

However, there is none so quiet as Google when a massive change is made, which affects its commercial customers who have enterprise software such as web analytics and marketing channels from Google.

Generic image of Ad Manager from Google’s sample page. Similar to DFP, but different enough to require concentration

Last week, Google made substantial changes to DoubleClick for Publishers (DFP), completing the full transformation of that service into what is now simply called Google Ad Manager.

May firms in the FX industry, due to the online nature of this business, rely on online advertising and affiliate marketing networks to acquire new customers and to reach out to new and existing audiences in all regions of the world, and in many cases, how those advertisements are displayed relies on Google’s advertising campaign management system, especially since Google and Facebook’s decision recently to prevent online trading companies from using advertising networks.

Thus, direct advertisements with specialist FX industry or retail sites, and serving of banners on their own sites and in some cases remarketing pixels, are dependent on the use of what is now Google Ad Manager.

Whilst this change has not really affected the functionality of the system itself from a site administrator or marketing executive’s point of view in that those professionals will still be very familiar with the way Ad Manager works as much of the functionality has been carried over from DFP, it is important to look at how third party banners with Tags are being served.

My findings on Wednesday after researching this with Google’s San Francisco-based operational support division deduce that most third party tags will not display under the new Google Ad Manager system and therefore the third party network that provides them should give new code which is compatible with the Google Ad Manager.

A nuisance? Yes. However it is worth contacting all third party Tag suppliers to request new tags because its better to ensure that an advertising campaign is fully operational.

Thursday: What on earth is going on at Plus500?

The executive board at Plus500 are a quietly confident team. They do not engage in media related activities, they do not give interviews on prime time television, they do not appear in high profile positions at FX industry events and conferences – if they appear at all, and they do not bombard PR sites with corporate spin or updates on any aspect of their business.

Apart from the mandated reports to Companies House and the London Stock Exchange, on whose Alternative Investment Market the company’s stock is listed, they are silent.

Silent, but a tour de force which has led the way in digital marketing and grown itself from a small office in Haifa to becoming a $1 billion publicly listed firm, whilst remaining very small in size and maintaining very little customer contact.

Plus500’s humble beginnings were in the nondescript city of Haifa in northern Israel, close to Technion University where many of its development geniuses worked for low salaries during internships

The company’s model of automated acquisition which onboards small, low-value traders from all over the world has demonstrated zero risk for the company ($200 deposit does not go far in the capital markets business, hence very little withdrawal risk) and minimized operating costs, has done it proud and has made it in many respects the envy of the retail FX industry.

So solid is Plus500’s basis for business that even in 2015, when the FCA were lobbied by British firms that did not want this rapidly growing upstart on their patch decided to send the FCA in with a remit to stop Plus500 in its tracks on the grounds of flouting compliance rules by not being able to conduct KYC (Know Your Customer) and AML (Anti Money Laundering) checks if the firm is allowing people to sign up and begin trading without having to speak to a representative or send documents in, only asking for them if a withdrawal takes place.

This resulted in Plus500 being ordered to halt all operations, collapsing the firm’s share price overnight.

Damage? Not really. Six months later, the firm had managed to satisfy the FCA and was back up to $1 million in value.

Silent confidence is the very ethos of Plus500, even if its absolutely ingenious modus operandi was an accident.

On Thursday this week, however, Alon Gonen, Gal Haber, Elad Ben-Izhak, Omer Elazari and Shlomi Weizmann sold 9.4 million existing ordinary shares in the capital of the company at a price of £15.50 per sale share.

Citing personal reasons, and not elaborating further, this is a major step for the very body of Plus500’s corporate existence.

Unlike some of the other large FX firms that have their own platforms and public listing, Plus500’s original owners are those who know the ‘secret sauce’ of the firm’s intrinsic and unique ability to prosper so greatly with so few resources, and thus if they continue to cash out, what does this mean for Plus500? Will it change its business method, and will it go into other areas?

This generic response to vast share sales has been used before this yea rby the same individuals.

In March, they collectively sold $80 million worth of shares, amounting to 7.27 million actual shares, also citing personal reasons in almost the same method.

Given the silent nature of their leadership, none of the shareholders have appeared on British media or Israeli media (Plus500 is listed in the UK as a publicly traded company but originates from Israel) and none have elaborated on any plans for the use of the capital or any intention to divert toward other businesses.

This direction is odd enough, given that Plus500 really is the embodiment of the minds of those individuals and is not the same as any other large firm which can be transferred to any purchasing entity and carry on as normal.

Which leads me to…….

Friday: Even Playtech is divesting

…this!

Teddy Sagi’s gargantuan Playtech, a publicly listed firm on the London Stock Exchange with a 2017 revenue of € 807.1 million has gone one step further than the initial founders of Plus500 and got out completely.

Just a day after the second large scale divestment of the year by Plus500’s initial founders, Playtech, a company whose roots are firmly in the online gaming software sector but has recently taken tremendous steps toward building a quality financial services and financial technology division with its acquisition of well known prime of prime brokerages such as CFH Clearing and a definite remit to build a full component system of FX businesses from prime brokerage to technology providers to retail brokerages, has got completely out of Plus500.

On Friday, any pondering as to why Plus500’s close-knit founders who will never give any of the business secrets away and whose business is likely to be very different with them having less control, Playtech completely divested from Plus500, selling approximately 11.4 million ordinary shares in Plus500 at a price of 1,550 pence per ordinary share. Thus, Playtech is realising gross proceeds of approximately £176 million (equivalent to approximately €196 million).

After a very short time, Plus500 rose to prominence and is now a $1 billion firm with its very popular stock listed here, at London Stock Exchange. So, why the massive key divestment?

Once again, no explanation by Plus500 was proffered to absolutely anyone at all, nor was its corporate viewpoint or plans to manage its business without such a major shareholder in future.

Playtech, however, was quick to state that it would use this raise of capital for general corporate purposes and debt reduction.

That is an understandable reason, but why Plus500? That is a highly efficient, profitable and world-beating retail FX firm that continues to keep its costs down and go from strength to strength, apart from having got itself caught up in cryptocurrency trading late last year to its detriment, but still, over the course of its existence, Plus500 is known as a lean machine whose rapid expansion of profitability cannot be impeded.

Not one peep from anyone has surfaced, yet this is most definitely a dynamic to watch, as Playtech is a highly strategic company and does not need to sell a golden calf which makes up a good proportion of its financial services business.

Similarly, the original founders of Plus500 are not only extremely wizened people who hold a secret ingredient to success and have clung to it for years, but are also not the ‘in and out quick’ type of entrepreneurs that simply get funding, start up a firm then exit a few years later. These are lifers. They are creators of a unique business that only they hold the key to and guard it fastidiously.

Why the sale? Who knows, but it certainly intrigued me this week, and I consider it a most unusual direction that must be taken seriously by us all.

Wishing you all a super week ahead!

 

 

 

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