Saxo Bank has just celebrated it's ten year anniversary. During these ten years the company has developed organically, and we have built the company from very humble beginnings to become DenmarkÃ¢â‚¬â„¢s largest independent brokerage in the late 90s. Becoming a bank Ã¢â‚¬â€œ focused on investment, trading and technology services only - was always in our long-term plans, as that better reflects the depth and quality of our service and areas of activity. It is important for us to signal that difference between Saxo Bank and many of our competitors in the online forex arena. Being an investment bank is a clearly recognised status worldwide in contrast to the more nebulous concept of a broker - and importantly, in contrast to the recent tendency towards lack of distinction between brokers and bookmakers in the UK.
Saxo has become one of the market leaders in electronic trading with over 140,000 members signed up on your website. Apart from delivering leading edge technology solutions - which weÃ¢â‚¬â„¢ll discuss in a moment, why else do you think your internet-based investments have been so successful when others have not fared as well?
Again, our organic development has meant a careful balance between earnings and investments. Saxo Bank has been profitable every single year since we started, and we intend to keep it that way. That means you maximise the efficiency of your marketing dollars, and you use the dynamics of the internet much more creatively than if you have your pockets full of IPO or VC capital. The internet offers wonderful opportunities for efficient marketing, contrary to what present conventional wisdom will tell you, and we have exploited this successfully through innovative testing and accurate tracking of our marketing. Also, of course, we are lucky enough to be in an industry that is uniquely suited to internet delivery. I would hate to sell books or clothes on the net, and I think such business models will suffer great problems in ever becoming profitable.
Traditionally your main client base has been the private investor. Today you have clients in 109 countries and they include financial institutions, fund managers and corporates. Does this explain your extraordinarily wide multi-cultural workforce with employees from 28 different countries?
We believe strongly in combining traditional values such as personal service with the most advanced technology. One of the most important aspects of service is communication and cultural understanding and both are of huge importance when dealing with a global client base. Ultimately, we intend to support any client group in their own language and we are generally awarded with a high degree of client loyalty in return.
In this edition of e-Forex we have been looking at the needs of the Fund Management community. They have very particular and demanding eFX requirements. How important is this sector to you?
We are very aware of the opportunities in the fund management industry, but have until lately mainly catered for active, individual traders. There is, however, a large demand for management services among our clients, and we are also convinced that our trading and administrative capabilities will be very well suited to the managers themselves. Therefore, we have spent some considerable effort in defining the needs of forex fund managers, and we will soon be launching a revolutionising concept in this area. Watch this space...
You offer free market data and information to your corporate clients as well as advanced STP and corporate Intranet services. Would you say these are the most important services for clients or are your marginÃ¢â‚¬â€œbased trading facilities with their associated credit and liquidity benefits possibly more so?
Both are important. In fact, we believe that the depth of our offering is the main factor which differentiates Saxo Bank from our competitors. Our platform combines many products and markets with a large number of value-adding components and can be exactly customised to suit a wide variety of requirements. That is one of our main strengths.
You have recently announced a major global expansion through your Ã¢â‚¬Å“White LabellingÃ¢â‚¬Â partnership schemes. These range from Technology Partnerships with large financial institutions to Introducing Broker (IB) relationships with smaller ones. How do these arrangements differ from traditional alternative ASP based solutions?
Again, in the depth of the offering. We do not just offer a piece of trading execution software, we offer everything from quality content to the partnering institutionsÃ¢â‚¬â„¢ own end-user clients, through streaming liquidity and highly efficient trade execution, backed up by full back office support. It is a one-stop solution whether you have your own trading facilities or not. And it is all based on profit-sharing, so there is no need for costly or risky investments that may never be recovered. The partners have the benefit of knowing that their and our interests are exactly aligned Ã¢â‚¬â€œ getting good volumes of business through the system, thereby generating income for the partner and us.
SaxoTrader, your internet trading platform, is supplied on a modular basis. Clients can choose what modules they want their system to have. Has this approach proved to be the most important consideration for partnering financial institutions when looking for you to provide their trading infrastructure?
A lot of institutions are excited about the fact that they can cover so many trading requirements with only one platform, simply through designing different versions for different client groups. They can use the same system for corporates, advanced investors or investors with more basic stock trading needs, for example. And they can easily upgrade individual clients by adding other modules immediately.
They can decide on complex and differentiated pricing structures and adjust all parametres such as the price spreads, commissions, margin levels, volatility and interest rate spreads. We are seeing several institutions that started out simply being interested in adding the derivatives service from Saxo Bank, but are now considering scrapping existing stock trading platforms to use our all-in-one system.
Many believe that improving post-execution services in response to tightening spreads, falling volumes and consolidation in FX is becoming the key issue and likely differentiator for banks. Where is the main thrust of your product and service development in the near future likely to be?
We are placing a lot of focus on providing a more Ã¢â‚¬Å“intelligentÃ¢â‚¬Â platform for the end-user. Tight pricing is becoming a very basic requirement, but this does not mean that people are necessarily making money on their trading. We believe the end-users, the individual investors underlying many of our partnerships, want assistance in making their trading decisions, and we are trying to automate some key analytical and risk management processes to support that. The growth offsetting the falling volumes you mention is going to come from the end-users, and they will be looking for intelligent modules which assist them in getting improved trading results.
We appear to be seeing the development of more multi-product eTrading platforms catering not just for FX but also other OTC products. Indeed your own SaxoTrader supports trading in forex and CFDs, cash market stocks and, soon, financial futures. Do you expect this trend to continue?
Yes. Why use multiple platforms if you only need to use one? The simple answer is that there is no reason for doing so, as long as the multi-product platform provides good value in all areas. Which leads me to comment on the multi-contributor FX platforms Ã¢â‚¬â€œ why use an auction type multi-bank platform, if you get equally good, quick pricing and much better service and strategic advice from one source that is intimately familiar with your specific needs and requirements? I think Atriax will be followed by other such collapses in due course, unless the multi-bank platforms radically change their business models . The present concept is flawed and a spin-off from the dot.com bubble way of thinking. It will go the same way that other weak concepts from that era have gone.
Looking ahead, are you confident your vision of the future of trading financial services over the Internet is being fulfilled?
Absolutely. Since we started down this road in 1996, we have never had any doubts that the internet will become the dominant channel for providing financial services in the future. I think that this is very clear to everyone by now. But what is less clear to many is that they really have to put this area at the very top of their list of priorities. Otherwise, the banks will perpetually remain behind, and we already see many regional banks running this risk. At the moment, it does not yet hurt enough to seriously change their focus, but it will be very difficult to play catch-up the day investors on a broad scale realise what quality of service is actually available on the global internet arena. Then being second-best and uncompetitive will no longer be offset by historical status, geographical location and consumer ignorance Ã¢â‚¬â€œ and realistically, the only way to catch up will probably be white labelling solutions such as ours.