Max, what was the rationale behind the formation of Newedge?
The market has been in a consolidation move over the last five or six years, with mergers among many of our competitors as well as exchanges -- ABN was bought by UBS, CME acquired CBOT, NYSE merging with Euronext and now buying the American Stock Exchange – so our shareholders began to look at how, instead of being marginalized, they could capitalize upon this trend to strengthen their investment and participation in the brokerage arena, along with their offering to customers.
Both Fimat and Calyon Financial had very similar business profiles: both owned by major global banks headquartered in France (Société Générale and Calyon respectively), both focused on similar business lines, and both with very limited proprietary trading activity in order to avoid conflicts of interest with our customers. In a lot of ways, it was a natural fit and joining forces created a far greater new force than simply the sum of our parts.
The result is Newedge, a global multi-asset brokerage business, with a strong presence in 17 countries with 25 offices, and more than 3,000 people working for us. We have access to more than 70 exchanges around the world and our combined revenues were around €1.1 billion last year. Newedge executes on a daily basis more than 5 million contracts and clears more than 6.2 million contracts. Globally speaking, the merger created a fairly balanced business. The US represents about 45% of revenues, Europe 42% and Asia the remainder.
The merger created an extremely strong competitor that stands out with its advantages in terms of a strong capital structure, a comprehensive product base and, most especially, as a single focused company. We are able to put all of our resources, technology and other resources to deliver 100% to the execution and settlement/clearing of institutional customer transactions.
Our core business is the listed derivatives business where we rank number three in terms of US segregated funds, and we have a dominant share of the business on most of the major exchanges around the world. Another key business where we have made a priority of expanding even further is our prime brokerage offering. Our FX operation is a major component of what we have to offer in this arena.
What main goals has Newedge set for itself over the next few years?
We are very optimistic about Asia and other emerging market areas. Asian financial markets have grown significantly over the past few years, and Calyon Financial brought with it to the merger a joint venture recently concluded in China with CITIC Group, one of the major players in the Chinese market.
We have set ourselves some very aggressive goals at the corporate level including a partial IPO within 18 to 24 months, with the two shareholders, Société Générale and Calyon, retaining more than 50% of the interests. This will create our own currency for future acquisitions, which we will certainly continue to explore both before and after the IPO.
We have set ourselves the goals of becoming the top player in the FCM business, a major force in inter-dealer brokerage, recognizable as one of the best prime brokers and, most importantly, doubling our current results within three years.
What vision do you have for growing the FX component of your business?
We are in a growth mode where our FX business is concerned. This is one of our most important business lines, with a full range of FX products – spot, forward, NDF, EFP and options -- managed through a single book from trading desks in New York, London and Sydney on a 24-hour basis, 5.5 days a week, as well as a sales and options desk out of Chicago and sales personnel in Dubai and Hong Kong.
FX currently represents 5% of the revenue for our combined company and we believe there is tremendous room for growth, particularly given the expertise and clients we already have. We expect this line to become a more and more significant part of our business.
We see the options business as a tremendous area of potential growth We recently hired another very experienced senior trader for the Sydney office and plan to expand our staffing elsewhere in the region, particularly Hong Kong, where we have a strong corporate presence, creating significant opportunity for cross-selling.
Overall, we have a very large group for this space and we plan to expand even further. Capitalizing upon the strong FX presence that Fimat had in Chicago and that Calyon Financial had in New York enables us to cross-market to clients of all the other business lines that operate out of our two largest global offices.
Can you tell us a little about how the Newedge FX division is structured?
I’m the Global Head of FX, based in New York, with Mike Bailey as the Head of FX Europe and Deputy Global Head. Both report into Marc Schultz, who is not only CEO of Newedge Americas, but is also the global executive committee member responsible for several of the key business lines. Mike also reports locally to Amaury de Villemandy, London head of sales.
Combined staff includes: nine in Chicago, both upstairs and on the floor; 11 in New York, four in Sydney, one in Hong Kong, and 13 in London and Dubai.
As experts in the field of prime brokerage, the Newedge FX Group offers full service Prime Brokerage, drawing upon the many years of clearing experience that both Fimat and Calyon Financial had in catering to clients that range from traditional investment managers and CTAs to hedge funds to overlay managers to banks and other FCMs and broker/dealers.
What do you see as the main advantages that Newedge offers FX customers?
There are a number of fronts on which we are uniquely positioned:
- Unparalleled Market Liquidity -- Our FX trading team combines primary liquidity from EBS and Reuters along with indirect liquidity from our nearly 60 banking relationships around the world. With a greater pool of liquidity than single banks, we are able to price and execute large transactions quickly and efficiently for our clients. Newedge clients trading via our FX Edge electronic trading platform also benefit from these banking relationships.
- Neutral, Fast Agency Pricing -- The deep liquidity of our updated agency model allows for immediate neutral pricing versus the “pass through pricing” of a traditional agency desk. We do not take proprietary positions, so all pricing is always unbiased. Consistent service to our institutional clients drives our FX model.
- Benefits of Scale -- Newedge executes tremendous volume each day on behalf of clients in all time zones. Our team is the primary business relationship of many global banks. Clients of all sizes benefit from the leverage that this volume creates with proprietary institutions. Execution for various trading styles, from global macro to systematic, is enhanced by this same leverage. We demand the best pricing and service from our relationships and we pass this directly to our customers.
- Anonymous Market Access -- As a non-proprietary agency desk, we are seen as a partner to our clients. We provide complete customer anonymity when executing transactions. Fueled by large trading volumes, it is easy to mask our clients’ interests and positions when entering or exiting trades. The market sees only the Newedge name.
- 24-Hour Support -- Trading clients have round-the-clock access to our experienced team of professionals for aggressive pricing, limit and market orders, and market commentary. We manage all FX relationships via one desk, ensuring consistent service to our institutional clients. Newedge also offers electronic trading solutions across many markets. Likewise, Newedge’s E-Brokerage customer support team is staffed around the clock and is ready to handle any technical questions for our trading clients. The electronic support team is constantly monitoring connectivity and working to ensure that FX Edge meets customers’ liquidity needs during all market conditions.
- Client Services -- All Newedge clients have a single point of contact to a dedicated Client Services Representative (CSR). With our global network of offices and CSR teams, Newedge can offer our clients seamless global coverage on a 24-hour basis.
- Electronic Reporting -- With Real Time Access (RTA), Newedge’s proprietary web-based reporting system, clients can securely access pre- and post-processed account information in real-time for review or downloading. The RTA database updates in 15-minute intervals with pricing updated every two minutes. RTA also provides immediate access to monthly statements and up to 30 days of daily statements to assist with client-related audit and research activities.
Can you highlight some of the key features of your FX Edge electronic trading platform?
FX Edge will continue to provide clients with a neutral platform that offers deep liquidity and tight spreads. The platform offers client anonymity, real-time access and all the afore-mentioned reporting capabilities.
Other characteristics of the FX Edge platform include:
- Aggregated spot prices from multiple liquidity providers. Newedge has long standing credit relationships with nearly 60 of the world's leading FX banks and has selected only top quality partners to ensure our clients receive high quality, available liquidity. This results in tight spreads and continuity of pricing that only multiple sources can provide.
- System accessibility to streaming market data provided in two formats: Screen Trading or via FIX API.
- Customizable trading platform for those users with Screen Trading access. Control all default trading quantities, one- or two-click trade execution, set currency and order size limits, configure trade blotter, select multiple currency pairs and generate customized, downloadable reports.
- Proven FIX API connectivity approach. Newedge provides full support throughout the integration of the FIX API. Integration is streamlined thanks to our proprietary FIX Rules of Engagement protocol and the expertise of our FIX support team assisting clients in setting up appropriate network connectivity, including testing, sample code in C++ and Java, and a final structured certification.
- Cost savings through utilization of one source for execution and clearing. By acting as principal to all client transactions and to the covering deals, we eliminate the need for an FX prime broker which reduces execution costs for clients clearing with us. Newedge has operated a sophisticated prime brokerage unit for many years.
- 24/6 support via multiple levels as dictated by the needs of our clients. With nearly 20 years of client services for professional customers, Newedge offers dedicated service via phone, email and web.
- The ability to process data via multiple file formats including CSV, PDF, XML, FIXML, TXT, and Excel-compatible files.
What plans do you have to enhance and develop your trading technology?
We are already adding technological support staff to enhance our product support as we achieve greater critical mass. We plan to leverage the relationships with external software houses held by both Fimat and Calyon Financial so that we offer our clients the full electronic suite and completely support whatever the clients want.