“Mind The Gap!” – The life and times of a man on the move Episode 36
Me? Trying to change market structure? Oh yes! Gibraltar is absolutely not the home of prime brokerage and institutional FX, we make massive strides to bring you London’s wealth managers and proprietary traders, and our pioneering effort to live stream a trading session!
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: Changing the market structure. Let’s future proof ourselves!
This week, I met with some very influential senior figures within some of London’s long established multi-asset hedge funds and wealth management companies, many of which execute their clients trades electronically via proprietary platforms.
It has long been a mystery to me as to why this industry leading business sector with highly capitalized loyal clientele has been ignored by the retail OTC derivatives business, because this is totally aligned when looking at the possibilities on a business-to-business basis.
Asset managers in London are not only extremely astute, but they are long established, often handling very high volumes of trades with the underlying responsibility toward their clients.
It would be very appropriate to consider them the alter ego of the island-based (be it offshore, Cyprus or Malta) MetaTrader 4 conversion-orientated reputation damagers that we all know are toxic yet many B2B providers continue to waste valuable resources courting.
London’s establishment may appear hard to crack on the outside, but the reality is that it is far more aligned with the absolute brilliance of the key firms in our industry that have developed top level execution – let’s face it, FX prime of prime brokerages like Invast, Advanced Markets, IS Prime, CFH and Stater, along with non bank market makers like XTX Markets and Citadel Securities are far ahead of the traditional banks and exchanges in terms of cost-effective trade completion to the point where retail brokers of good standing have garnered the most enormous and loyal client bases over the last three decades to the point at which dinosaurs like the London Stock Exchange and Deutsche Boerse have had to resort to lobbying efforts, and other electronic venues have had to enter into very high value mergers and acquisitions to try to regain a foothold in the retail market.
Speaking on Monday to a Director at Blackrock in London over a coffee, I explained the reason why we should be integrating. He totally understood and was extremely affable. “You are trying to change the market structure, and I understand why but it has been in place for several decades” he said.
Yes indeed. It has.. and I am. It is the way forward. Retail brokers can upgrade their product offering and get away from the race to the bottom that being subservient to a low-end Cyprus-based monopolist who controls all of the client bases of all white label partners, and can attract Western customers with large portfolios by providing multi-asset wealth management-orientated products.
It is the way forward. Someone has to spearhead it for our greater good. Perhaps that person should be me.
Tuesday: Gibraltar license for an institutional provider? Mind how you go….
I realize that this is a path that has been trodden quite rigorously, however yet again, the distinction between retail brokerage that onboards direct clients and institutional provider of liquidity has been blurred.
I noticed that LMAX, which prides itself on competing with prime of prime brokerages in London, has obtained a ‘license’ in Gibraltar to operate a cryptocurrency exchange.
Since when is this an institutional product, and why Gibraltar?
Just a few weeks ago, the company obtained a similar ‘license’ in New Zealand, as a retail brokerage to onboard clients from the APAC region as direct retail traders on a b-book basis.
There is really little else to say on the matter other than that this is the corporate direction of a B-book retail brokerage, not an institutional prime of prime or multilateral trading facility.
FinanceFeeds remains committed to taking its part in furthering the business potential of brokers and institutional providers based in top tier jurisdictions which have structured their businesses in a way that constitutes transparent, proper business methodology – that being the $100 million that prime of primes need to display on their balance sheets to be able to offer genuine Tier 1 FX liquidity, technology providers that genuinely integrate market access to retail platforms, and the large, high quality retail brokers, many with public listings, whose longstanding client bases are testimony to their credibility.
Every brokerage executive knows that islands mean second or third tier retail and London, New York and Chicago mean the cornerstone of tier 1 financial markets. I mean, what is a firm that provides execution services to brokerages doing operating a crypto exchange for retail clients on an island on a b-book basis? If it goes wrong, where will your client funds go?
Far from being a FinTech and capital markets center, Gibraltar is home to online gambling.
In 2014, Peter Howitt of the Gibraltar Betting and Gambling Association told a reporter from Vice.com via email that gambling “is estimated to constitute as much as 25 percent of the GDP of Gibraltar, and it contributes millions in corporation tax, gambling duty and PAYE from the thousands of people employed in the industry.”
Nonetheless, interest is high, with Ian’s company receiving applications “in the thousands from all over Europe, but with a definite UK skew.” IT jobs, like those worked by Robert, are the most lucrative. “Most of the gaming operations are online, so there’s always demand for developers and programmers,” said Ian Hancox of Recruit Gibraltar in 2014.
Rather as is the case in Cyprus, to expats, the lifestyle is at least as important as the money on offer. Many working class British expats live in Gibraltar, few of whom have any industry experience in the capital markets or institutional technology sector and even less of whom are able to maintian Tier 1 bank liquidity relationships. One indivudual that we spoke to was effusive about life in Spain, explaining that moving to Gibraltar was, first and foremost, “a chance to get the (insert expletive here) out of England.”
…No doubt he meant Blackpool, not Blackfriars.
Going down the retail Gibraltar or New Zealand route distances firms from their institutional counterparts. Look at the origins. Most institutional firms are led by management who have been senior professionals at exchanges or technology firms in the trading industry, however LMAX hails from the gaming sector. QED.
Wednesday: We will bring you the hedge funds and wealth managers!
This Wednesday, I met with some industry leaders in London who are instrumental pivotal contacts within London’s electronic wealth management sector.
Without going into too much detail – you are welcome to join us on May 7 at The Ned to meet these C-level hedge fund executives in person – FinandeFeeds will be imparting a whole new potential high level client base to the FX and CFD industry.
Interestingly, it is not a one way street. For quite some time, the higher quality retail firms and prime of prime providers in our industry have wanted to expand their remit into the London-based wealth management sector, and rightly so. It is far more appropriate to be working with the funds of London than the chop shops of the Mediterranean which do not last five minutes and are not conducive to empowering a good quality, portfolio-carrying long term client base.
Sustainability and future prosperity is only achievable via working with the good, long established firms which host high net worth clients with diversified portfolios in proper financial markets centers, hence our remit is to bring them to you.
What is particularly interesting and very encouraging from an OTC derivatives point of view is that many wealth management firms and hedge funds actually admire our industry and want to integrate with it!
They also need the convenience of being able to connect to a highly advanced OTC execution facility via a simple API – the methodology offered by most of our integration firms, brokerages and prime of primes – in order to gain volume from retail customers, and those would be the very same retail customers who would benefit from the management of their trades by absolute experts.
Goodbye the $200 deposit and 3 month lifetime value CPA nonsense, hello the $50,000 deposit and 10 year lifetime value owners of diversified portfolios.
Where do you form an orderly line?
Friday: We live streamed a trading event!
It has not been done before, however it should be a regular fixture.
On Friday this week, FinanceFeeds streamed a live broadcast from the Tradathlon Grand Final in Dubai.
The Tradathlon was a trading competition hosted and sponsored by retail brokerage EXNESS, in which retail traders from across the world traded in a live environment, collectively.
I am sure that everyone wants to see the actual trading taking place on their platforms, and other retail traders also want to see timed events such as the Tradathlon, as it represents the very coal face of the retail industry – that being a diverse section of retail customers of brokerages, trading live accounts.
It has been a remote activity until now, however on Friday, our audience was able to watch live trading taking place on retail platforms by people from many regions in all corners of the earth.
We will definitely be doing that again.
I am now heading to Sweden, where I will bring you full reports from the establishment of a retail FX industry in the most transparent and socially advanced nation on earth. Meanwhile, have a super week ahead!