“Mind The Gap!” – The life and times of a man on the move Episode 15

In depth discussions with Michael Davies, Ramy Soliman and Mark Chesterman in London, Gold-i’s massive milestone, Rakuten and a budget airline equals great FX marketing, and I head to the middle of nowhere to compare liquidity providers

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.

What a fascinating week.

Here in London, a huge amount of motivation among career-length executives who are mainstays of the electronic trading business with their careers stemming back several years appear not only rejuvenated, but in extremely fine form in these times of exponential change.

The Northern & Shell Building – a long and illustrious FX industry history

A different format permeated my diary this week, largely as a result of such a sea change among London’s institutional FX business and its new-found liveliness.

Here in the world’s financial and technological capital, milestones have been documented, opinions debated and challenges embraced.

One such milestone was represented by over 100 senior FX industry executives, an unusually clement October evening, a FitBit and a DJI drone at Monument Terrace, a large open venue several floors up the Northern & Shell building on Lower Thames Street as electronic trading industry technology and systems integration company Gold-i celebrated 10 years in business.

Gold-i at 10 years! We celebrate in London

For a business started by an experienced technologist with a vision, right at the very beginning of a large scale metamorphosis by retail FX brokerages which use third party platforms, themselves a very different business structure to the large establishment of the time which had already several years of proprietary trading system provision under their publicly listed corporate belts.

The Northern & Shell Building has an illustrious FX industry history. 15 years ago, it was home to ODL Markets, this week it hosted Gold-i’s 10th anniversary

That metamorphosis consisted of a drive by retail firms that had come from completely different industries and had been able to enter retail FX by simply leasing a MetaQuotes server in 2004, largely due to the initial four years of MetaTrader 4’s initial deluge, so many brokerages had made it their entire trading environment that a need arose for the connectivity of MetaTrader 4 to live first tier financial markets, a functionality that it had never originally been designed for.

Bearing in mind the fledgling status of MetaTrader 4 and the brokers that were using it back in 2008, along with the plethora of new customers that could suddenly access a whole range of capital markets from their laptop (or desktop in those days!), a vision such as that taken by Gold-i CEO Tom Higgins could possibly have been regarded as a leadership into a new and unproven ground, however Gold-i stands today as one of just three specialist companies that have not only pioneered the integration of third party trading platforms into live trading environments, developed hosting functionality, risk management solutions and liquidity management technology for retail brokers, but now form the absolute mainstay of global retail FX trading.

Quite simply, Gold-i, oneZero and PrimeXM are, between the three firms, the linchpin within all FX trading firms internationally, which is remarkable indeed, and testimony to the design and engineering genius behind them.

This week at Monument Terrace, Tom Higgins reflected on a decade of rapid development and change within the electronic trading business and the structure that underpins and powers it, his affable and personable nature now a well known facet among executives from Sydney to London and from Shanghai to Hong Kong.

Ten years of business is a remarkable achievement in itself, especially for one of the firms that led the way.

Two years ago, I spoke to Tom Higgins about the then imminent move toward MetaTrader 5 and how it should be considered from a software integration perspective.

Gold-i CEO Tom Higgins looks back with enthusiasm on 10 years of innovation and leadership

“Once the integration technology has caught up, this will cause MetaTrader 5 to provide a far better experience for brokers and traders alike” he said at the time.

“There is a lot of work required on the side of the software vendors, but once that has happened we will be migrating people from MetaTrader 4 to MetaTrader 5 as a service and it will come with Matrix 2 as well as our bridge and other products like MAM that we will bring across to MetaTrader 5″ revealed Mr. Higgins.

“Within six to nine months our MetaTrader 5 integrations will be fully productized and all the liquidity providers that we have integrated with on MT4 will also be available on MetaTrader 5. However, we will start to see new brokers just taking MT5 and this will change the landscape substantially” he said.

Indeed this has occurred, as just over six months from that particular meeting, the MetaTrader 5 Gateway was ready for launch and now MetaQuotes is well into its drive toward ensuring all brokers move to MetaTrader 5 en masse.

It was great to see some of the industry’s most esteemed executives, and very fitting that the venue used to be home to ODL Markets. A blast from the past, and a look to the future.

Very well done to the Gold-i team, looking forward to another decade of innovation. Just mind your heads on the Drone!

Michael Davies, Mark Chesterman and Ramy Soliman, Great to see you 

Is there life after a corporate career at a large firm? Yes, most definitely there is and the recent moves of several very senior FX industry executives from long term senior positions at some of the most long established and stable household names in the business to young, dynamic and going-places institutional providers has been completely unprecedented.

Ordinarily, the prospect of leaving a 10 to 15 year career at a large, publicly listed company where security and conservatism is all-encompassing for a relatively new firm would represent a shift from security and absolute knowledge to an entrepreneurial environment which requires a totally different perspective.

This, however, is what many executives are now doing, however with very calculated reasons.

Whilst making such a step may appear somewhat of a leap of faith and a diversion from the corporate comfort zone, in the case of some very highly esteemed professionals in the equally highly esteemed City of London, a massive opportunity has arisen and confidence and aspirations are high.

This is because London’s entrepreneurial spirit within the institutional sector is being pioneered by long standing corporate executives who have founded new and important firms with innovative ethos with their careers at large institutions as a basis.

Ramy Soliman is no exception. Just over two years ago, he established Stater Global Markets, representing a very rare entry into the genuine prime of prime brokerage arena. Put simply, nobody has managed to do that.

CFH Group CEO Matthew Maloney looks to a high quality future

Joining the company recently was Mark Chesterman, former Chief Operating Officer at IG Group’s institutional division with a 14 year tenure at IG Group behind him, and even more recently, Michael Davies, who left Sucden Financial after 14 years at the company, culminating in his ultimate role as Head of eFX Sales for the EMEA region.

This week, I visited Stater Global Markets’ new facility, which is equally as avant-garde and ultra-modern as the firm itself, directly opposite the immensely popular Ned venue in the heart of the Square Mile, next to Bank station.

Mr Davies and Mr Chesterman are now Global Head of Sales and Chief Operating Officer respectively, and are instrumental in the growth of Stater Global markets under former Citigroup and IG Group senior executive Ramy Soliman, the company’s CEO and founder.

Meeting this week with Mr Soliman, Mr Davies and Mr Chesterman placed all three esteemed executives, each of whom I have known professionally for several years in their previous corporate capacities, was of tremendous interest to me.

Mr Chesterman looks at the dichotomy between vast expertise within corporate giants, and the equally vast expertise which is centered on specific individuals who take the initiative of founding new firms. “Older companies have a lot of legacy systems” he said. I concur with that, as some of the large non bank institutional firms operate their solution in a similar method that banks do, with over 300 support engineers and a large, hardware-dependent in-house system.

Mr Soliman explained “We can be disruptive, we don’t have the legacy situation, so in my opinion, providing a flexible, bespoke service to companies in our industry is much easier for a new company to do from scratch.”

“It is very difficult to evolve old technology” said Mr Soliman, echoing the thoughts of my good friend Ron Finberg with whom I had discussed this during a podcast last year, and alluding to the clear notion that this is a very entrepreneurial business on the retail side.

Mr Davies, himself very well aware of the advantages and limitations of large scale institutional infrastructure, explained

“We need to deliver the systems and solutions that each client needs, and if that cannot be done so easily and flexibly, the whole interaction becomes a difficult, slow and frustrating process. Large organisations have the ability to build bespoke systems in house, but when those systems become outdated it becomes harder and harder to adapt them and often, for political reasons, impossible to replace even when it’s the right course of action” – Michael Davies, Global Head of Sales, Stater Global Markets

CFH Clearing’s Michael Bleys (right) and former colleague Michael Davies (left) discuss the direction of trading platform integration at Monument Terrace

Mr Chesterman said “All of us can reflect on the important fact that we came from big institutions that ran their businesses properly, but we can now bring our expertise to bear, driving a vibrant, enterprising company. We are all single-mindedly shooting for the same target, working as a team to expedite the growth of the company. Stater only hires top talent, which gives us a team that has every aspect needed to provide quality services to the brokerage industry.”

“My vision is to fast track the knowledge. This company is two years old but we have the institutional knowledge of a much more mature firm due to our executive team’s background. We can ensure that we don’t make the same mistakes that have happened across the industry in the past, and we are one of just a handful of genuine global prime of prime brokerages that exist. This has been done in two years by selecting the best from day one from large firms with good reputations, we aren’t tied to old technology or obsolete procedures. We appreciate that it is good to work with your own technology but working with the best third parties that are out there is the rationale behind our method.” – Ramy Soliman, CEO, Stater Global Markets.

“We have everything we need and are smart with our reliance on third party vendors, liquidity providers and technology solutions companies. We have taken time to get the basics right, we have the capital base to access the liquidity and we have spent money in order to get over the barriers to entry which often make it very difficult for others to get to where we are. We have the top tier banks and top level technology companies, these firms being Integral, Flextrade, PrimeXM, Gold-i among others, and we have staff who know the people at these firms, know the platforms, and are very capable of maintaining strong business relationships. In addition, we have spent a great deal of time to make our onboarding process one of the quickest amongst our peer group. We appreciate that brokerages like to be onboarded quickly and we are able to deliver a swift compliant process” said Mr Soliman.

“Mark joined us from IG, and wanted to take the leap from IG to Stater because it gets past the difficulty of building a specific business in an environment in which the institutional side is not a core business activity. It was pretty much the same for me at Citi, as I was in a senior role within what by banking standards was a relatively small department within a very large scale investment banking division of a vast institution” said Mr Soliman.

Ramy Soliman, Michael Davies and Mark Chesterman bring 15 years of institutional experience and combine it with innovation

The need for long standing institutional sector knowledge and ability combined with flexible and modern entrepreneurial ethos is perhaps a method that needs to be considered carefully, especially during a time at which many retail FX brokerages have very genuine and far-reaching concerns about the sustainability of their business, as detailed to me last week by many retail brokerages I visited in Cyprus.

“A lot of retail brokerages are understandably worried at the moment, which is where Stater can help” said Mr Chesterman. “We are able to work closely with them, and understand their business needs on an individual brokerage basis to help them structure their business in a sustainable and high quality way. As we have discussed many times in the past, it is no surprise that regulators have taken a sharp look at this industry. With their actions, they are forcing the market to move towards brokers having to manage risk properly. There is an ethical, risk-managed way to provide good quality brokerage services, and we are here to help brokerages achieve this.”

“The concerns that regulators have is that thinly capitalized companies sit on risk, and that is the bad practice that is being regulated out. Firms like Stater should benefit because any brokerages not managing client capital, order flow or risk properly will either go out of business, or start to realise that they have to go with proper prime of primes with top tier liquidity from major banks. CySEC has stipulated that brokerages cannot externalize their order flow outside G20 countries so there is already a drive toward ensuring that all firms hedge with reputable firms like prime of prime brokerages, the end result of which will be better risk management and better liquidity management” – Ramy Soliman, CEO, Stater Global Markets.

Mr Chesterman then picked up on this by saying “Now liquidity management will get better across the board. Whether the regulators have it right with regard to leverage restrictions is hard to justify, but that has highlighted this issue. You mentioned it before, brokerage owners in many cases are entrepreneurs, yet they are now being forced to recognize that they are coming into a risky market and will need to use firms like Stater to help them maintain their entrepreneurial method but without such short-termism usually associated with those who are out of the market after just a few years.”

Mr Davies then elaborated on what he saw as a large opportunity at Stater, based around exactly this matter.”

“I looked at Stater because it stood out amongst the many self-labelled prime of primes as having direct access to tier 1 bank and non bank liquidity, whilst avoiding the major conflicts of interest that almost all other prime of prime seem to have – whether it be competing with their clients for retail business, market making, or benefiting from profit share arrangements with their liquidity providers.”

Mind your head!

Indeed so – This is exactly what caused the demise of Gallant Capital Markets, as AFX Group was selling ‘liquidity’ to brokerages and then engaging in profit sharing, a fact that they tried to suppress, which later proved our research to be correct.

Mr Chesterman agrees that regulators are becoming far more experienced in understanding the full topography of the retail FX business, which is why concentration on the right infrastructure is important. “Regulators will soon begin to care where brokers are putting their money. A business model where profit sharing is prominent is an absolute taboo and very soon will be on the radar of the main regulatory authorities. There is such a conflict of interest in this business model, no serious Prime of Prime broker would offer it.”

He is indeed correct. Yes, the Gallant case, and those who are owed money due to very underhand profit sharing antics is being dealt with by a bankruptcy court and therefore is a civil matter, however it is very likely that regulators will begin looking into this and putting a stop to firms that they catch engaging in it.

Mr Soliman said “Really what this represents in many cases is a change of mindset among retail firms. Retail firms have been pushed into a corner where they can’t monetize and often place the blame for this on the new rules. These practices are their ways for dealing with it, but ultimately much of that sector needs re-education as in many cases the retail sector has very simplistic risk management. Many of them are very good marketeers and excellent in terms of building up a profitable business from scratch, but a whole change is needed. We come from risk management, understand the FX industry. It is why people like Michael Davies are here to spread the good word and convey the knowledge to help retail brokerages.”

“Our whole industry needs industry reference points to give a good perspective. If you are a retail firm in Israel or Cyprus or China, and looking for a provider or vendor, you are likely to see the word ‘prime’ as part of the name of so many companies, many of which are not prime of prime at all. Some firms may not need a prime of prime but brokers need to be able to differentiate between those who are simply selling their own dealing desk feeds to brokers as well as retail clients, and real prime of primes. The problem here is that there is so much misrepresentation.”

1 Poultry’s super fashionable shared spaces and ultra modern facilities echo the ethos of today’s institutional providers

Mr Davies elaborated on this “Many banks do not allow you to publish that you use them as a liquidity provider, however some firms posing as prime of primes just do it anyway. Indeed, if you see a site which is peppered with names of large banks, then it’s highly likely that this is not a prime of prime and is simply copying and pasting names of banks onto their sites to try to give a certain impression.”

This is right indeed, FinanceFeeds has come across this several times, especially in the APAC region.

Mr Davies said “Does your liquidity provider have its own bank PB with direct access to bank liquidity? Do they interfere with price? Are they profit sharing? I always tell firms I speak to that they should ask such questions in writing when choosing an institutional partner. A broker in a reputable jurisdiction like the UK can only answer these questions truthfully. Firms might wonder why such things really matter but to be a proper prime of prime this company has spent money to get knowledgeable staff, establish and maintain proper prime brokerage deals with banks, along with technology that delivers top tier liquidity.”

“We can give a bespoke solution from a liquidity and technological perspective. For example, your brokerage’s order flow might not be best suited toward banks, so it could require an ECN such as FastMatch or HotSpot. For example, a large broker in Turkey, but with institutional size tickets, a bank feed may be best so we would speak directly to the bank get a special feed that deals with clients that deals with 5 to 20 million clips. Finding the right liquidity solution for our customers via a proper institutional toolbox is our ethos” – Ramy Soliman, CEO, Stater Global Markets

Mr Davies said “Prime of Prime is a relatively new term but it underpins and drives a massive industry underneath it. At the top there are really only around five companies like us in the world. . There is a whole tier underneath which gets liquidity from one of the five genuine prime of primes, then they sell it down, and in the end there will be a compression of those tiers. We need to educate customers that there is a hierarchy and with that comes better service, and better liquidity if you do it properly.”

Mr Chesterman added “If I was running a retail broker, I would ask where is the conflict? Are you market making to me? If the answer is yes, then there is a conflict. If your institutional provider has a retail broker that is competing with me, it’s a conflict. Stater takes no risk, we are not a retail broker. All of us have come from respectable places and we need to lead the market and explain what it means to have a proper prime of prime that is not at all conflicted in any way with our clients. An unconflicted model creates sustainability.”

London’s institutional leaders look forward to a new era of modernity and innovation

Mr Soliman said “We are happy to create thought leadership to communicate these issues to a wider audience, including involving regulators so that people don’t make those mistakes. There is still some degree of naivety in that some smaller companies believe there is a free lunch, usually in the form of massive leverage, swap free trading terms, and institutional pricing, but if you unpick those things, the only provider that can give that is someone who isn’t a prime of prime and is creating its own market. If I am a broker and I want all the profit shares, high leverage and low spread then I would have to understand the risk of not having the flow go through a prime of prime relationship.”

Mr Chesterman’s view is that “Firms that offer such terms must be monetising their businesses somehow, perhaps by something which conflicts with the brokerages to which they provide service. Where is the money going to people who are giving no spread or swap free terms? Many want a liquidity provider to subsidize the cost of their business. When firms realise this, there will inevitably be a flight to quality in our sector.”

“A choice price does not mean a free trade. 0.2 from an OTC provider is different to 0.2 from a true Prime of Prime broker, and clients will realize that they will get good liquidity provision from proper providers, whereas promises of a huge amount of leverage, subsidies and other enticers from some firms will be both costly in other ways, and most likely contrary to their best execution requirements” – Mark Chesterman, COO, Stater Global Markets.

Mr Davies said “Companies offering such aggressive terms are often only able to do so because they are profiting from their clients’ losses and will quickly shut down the account as soon as the client makes money. Clients have to ask themselves whether a too good to be true deal is really a long term sustainable solution.”

“I spent 5 years at IG, Mark over 10 years, and we know that there is a case of a contraction in the sector that is made up of retail brokers. Currently, for example, there are approximately 170 CIF licenses, that may well come down to 25 who are all well capitalized, and provide good service to clients. Most of the current retail brokerages are absolutely great marketeers, and have staff who know how to give very good customer services, hence the whole ecosystem in Cyprus is suited to running retail brokers. Regulation is helping them so that when they do take risk they do so with the right capital base behind them. We have built the right product and now need to educate people how to do this the correct way” said Mr Soliman.

Mr Chesterman agrees with me in that “Retail firms are going through a hard time. The ones who come out the other end will come out stronger and better. There will still be a retail brokerage industry and it will be a very good one.”

Look at the leverage caps in Japan a few years ago. It strengthened the business, led to world-beating volumes of often over 1 trillion dollars per month per Japanese retail brokerage, and led to a pragmatic approach by traders of putting in more margin capital.

Interesting times and great to see you all this week.

Rakuten, you are doing guerrilla marketing the right way!

Why do retail FX brokerages not attempt to partner with massive online ecommerce or internet giants that are generic and outside the industry? Why not even eBay or Amazon?

It is of course a case of looking past the obvious notion that absolutely no clients will get on board by using their VOD facility on the smart TV to view a Netflix movie, just as it is unlikely that an eBay auction purchase via a cellular phone application would spur an association with a retail firm – “Ah, eBay is partnered with ABC brokerage, I think I’ll start trading” is never going to happen.

I can remember years ago, iFOREX, one of the masters in digital lead acquisition at the end of the last decade, were buying 90 million impressions per month on eBay for very reasonable prices and then optimizing the ad creatives, to very little conversion effect.

Marketing by association. The antithesis of lead buying!

If a company like that with an almost Plus500-style digital marketing solution and teams of in-house media buyers and optimization systems can only achieve a less than 10% effectiveness rate from a generic site like eBay yet all brokers can get far more from a few hundred impressions and a remarketing pixel on a dedicated FX industry website, then it says all that is needed to be said.

However, when looked at from another, very modern perspective, things are somewhat different. Today is not the end of the last decade, and online resources, apps, and smart-everything dominate the entire world. Look at companies such as Revolut or TigerWit. I have seen both firms this week in London and they are the absolute pinnacle of modernity.

Therefore, a brilliant way of attracting astute, self-empowered clients, who know the electronic world well is to partner with large firms. Saxo Bank understands this well. I was at a private event in Hong Kong, reported here, a few years ago, and their executive team explained why retail FX firms should embrace the methodology of realestate-free online giants such as Alibaba and Amazon.

This week, I boarded an easyJet flight from Basel, Switzerland to Bristol, England. In the rear of the head restraint in front of me was an advertisement for Rakuten online entertainment. I immediately thought of FX firms. Rakuten is huge in the FX sector, especially in the APAC region. Thus, association is vital.

Partnering with firms like Rakuten is the absolute opposite of lead buying and digital marketing. Lead buying is an attempt to convince someone who does not understand or want a trading account and attempt to convert them to live customers. This often means low deposits and short lifetime values.

Partnering with avantgarde global giants such as Rakuten creates a ‘trust by association’ among enlightened and knowledgeable internet users. Let’s see more marketers strike deals like that.

Talking of which, I have been coding this week in order to provide a very special global service to retail brokerages. Watch this space!

Here is a clue…..

Now, I am heading down to rural Devon, in South West England, to meet Sam Low, a former Integral Development Corporation senior executive, who is CEO of LiquidityFinder, a type of online comparison market place for liquidity providers.

Who said London is the center of the universe? Ah yes, that’s right, it was me! Good day to all from the South Western British countryside, and I wish you all a great week ahead.

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