Jonathan, how long have you been working in the financial markets and what do you particularly enjoy about your day to day responsibilities as head of e-FX Business Development at Sucden Financial?
I have been in the FX market since 2009, having previously been at Goldman Sachs for a number of years in the European futures business. I moved to Sucden Financial to work in its centralised electronic trading business which incorporates FX as one of its major product areas.
On a day to day basis, I enjoy the entrepreneurial challenge of driving this business forward, particularly from a strategic perspective. There was already an e-FX business at Sucden Financial when I joined in 2009, but we have evolved our offering and are now doing more volume on an average day than we used to do in a whole quarter.
What services does Sucden Financial’s e-FX division provide and how are they tailored to meet specific client requirements?
We offer a ‘one stop shop’ for retail brokers seeking access to FX, whether they require a liquidity-only or a full front-to-back technology solution.
The headline list of products that we offer is STP FX and spot bullion, index and commodity CFDs and DMA single stock CFDs. In addition, we offer execution and clearing for Exchange Traded Futures.
Our competitively priced liquidity is available via a number of different means. The majority of our clients trade through our API or our white label offerings but we also have a selection of GUIs that clients can use to trade directly with us.
A key part of our offering is that we provide a bespoke service for each individual client, with tailor-made solutions to meet their specific individual needs. For example, we recently built a DMA single stock CFD solution into MT4 in response to a particular client request, enabling trades to be covered on an underlying exchange.
How does your strategy differentiate you in this increasingly competitive marketplace?
A key aspect of our strategy in our e-FX business is that our offering focuses on institutional clients, such as FX brokers, private banks and hedge funds. We feel that this is an absolutely critical aspect of our offering as it means that we do not compete directly with our broker clients. For instance, our multi-product MT4 is only available on a white label basis to retail FX brokers and not available to direct retail clients.
Sucden Financial has a long heritage in exchange traded futures and options and the expertise is carried through into our FX business, where we provide 100% STP FX liquidity. We consider that this is rare, because we do not back-off the business to a subsidiary or specialist market maker. This has proven to be an important consideration for our clients and, most importantly, it enables us to offer a consistent, reliable service.
As you have just highlighted, Sucden Financial has a strong heritage and deep expertise in dealing with commodities. How has the firm been able to capitalise on that experience in developing your electronic trading capabilities and differentiating your FX business?
We have 40 years’ of experience in the financial markets, with solid infrastructure and a strong balance sheet, which is becoming increasingly important for clients in recent turbulent times.
Our size and the longevity of our banking relationships has a direct bearing on our liquidity, allowing us to get large lines with our liquidity providers, meaning that our depth of book and spreads are highly competitive.
A very tangible way that we have managed to capitalise on our commodities background can be seen in our spot gold and silver feeds. We have, in my view, probably the best gold liquidity available in the market, both in terms of headline spreads and also the size that we have available.
In terms of technology, we do leverage some of our existing architecture but we also have the financial strength to either build or source industry leading third party technology to ensure that our clients get the best tools available for their trading needs.
One other benefit of having an established existing business is that we have a profitable core product offering, which enables us to be selective as to what business we accept. Many start-ups (even high profile ones) do not have that luxury. Not all business is good business in this industry and we are careful, both from a strategic and (probably more importantly) KYC perspective.
We used to talk a lot about Hybrid broking in e-Forex but over the last 10 years our coverage has gradually diminished as we have increasingly focused on the e-trading space. Do you think there will always be a role for voice broking?
I have been actively involved in electronic trading for my entire career, so I am a fully signed up disciple of the “e-revolution”. Clearly the growth trend in the spot market in particular is in the direction of electronic trading. While this trend is set to continue, we do consider human interaction to be a key component of our product offering.
We provide responsive and proactive client support and insist that our execution support teams are available on the phone on a 24-hour basis and can deal with client queries quickly and efficiently. I feel that this is an area of our offering that is particularly strong. There is no automated answering service, no call back, just a direct number with someone immediately available to deal with any issues which arise.
Do you view the imposition of new regulations on FX as a threat or opportunity for Sucden Financial and how has addressing these proposed market changes impacted on your strategy for developing the firm’s e-FX business?
It is clear from the rhetoric and the political pressure that is on regulators that there will continue to be a trend towards greater regulation in the industry. Given that our background is in the highly-regulated world of exchange trading, I am confident that our experience will help us adapt to any new regulations. For instance, we have been members of LCH.Clearnet since the company started in 1973, so the requirement to centrally clear NDFs should not be taxing for us to comply with, and our clearing costs are also low.
Sucden Financial is a well-established firm with over 40 years of experience. We have always been able to adapt to industry changes and I believe that any significant changes to regulation would be no different.
In what ways do you think the traditional business model of Retail FX brokers is changing?
The traditional retail broker business model is changing dramatically and the main obvious trend is that many brokers are moving from a market making model to either full STP or a hybrid between the A and B book approach.
How has Sucden Financial been helping them to diversify into new product areas and meeting their liquidity and trading platform requirements?
As a fully STP “wholesale” broker, we have a very easy and cost efficient entry point for many retail brokers. In addition, we have added non-FX products to our
portfolio in response to client demand. On top of FX and bullion, we offer index and commodity CFDs and also DMA single stock CFDs. I believe this is a unique offering for retail brokers.
Many commentators expect to see significant growth in currency futures and options trading on exchanges along with an increase in social and mobile FX trading. Where do you expect the next round of growth in e-FX to come from and how is Sucden Financial gearing up to meet that?
FX is obviously a massive global market and with the pressure on exchanges to expand their revenues, it is not surprising to see that they are beating the drum about on-exchange FX trading. I can appreciate the case that the exchanges make, but I only feel that it holds water in markets that are inefficient. The spot FX market is generally very efficient, which explains why the volumes on exchanges are still very low as a percentage of the total market.
In my view, on-exchange venues are useful places for the top LPs to hedge risk when they need to, but I can’t imagine exchanges ever becoming the primary liquidity source for spot FX. In order for this to come about (excepting regulator intervention), they would need to be fully supported by the major liquidity players in this market. I think that it is unlikely that they will get this support, especially with the speed at which futures market commissions are being compressed. It is notoriously difficult for an exchange to generate liquidity in a new or less successful product, and I see no reason why FX products will be any different.
Social media is naturally going to be a driver in the retail market, but that is a little more downstream from us because we service retail brokers and we are not involved in the mass market retail FX business.
Over the coming months where will Sucden Financial be focusing efforts to further develop and enhance your range of e-FX products and services?
As I’ve already highlighted, it is a clearly defined part of our strategy that we do not service retail clients directly, as we feel that it is counter intuitive to compete with our broker clients. The retail “coal face” is where much of the innovation in this industry is carried out, with social trading, mobile trading and many other technologies.
Ultimately, I see what we offer as a pretty simple product (although it can be hard to do well!) and as such our short-term strategy is to continue to offer a reliable and competitive liquidity source to our clients and to assist them in scaling their business as much as we possibly can.
It is naturally important, however, that we remain aware and open to technological change. We are constantly monitoring the take up of MT5 and other technology to see whether this is something we might be able to offer to our clients as a white label solution. Should we feel we can use our resources to add value and provide something that a client might not be able to obtain on their own, then we are definitely prepared and able to do this.
Looking further ahead, what do you see as the major challenges facing leading e-FX providers like Sucden Financial as you strive to cater for an increasingly diverse and demanding client base whilst seeking to maintain your competitive edge in the FX space?
Our client retention is excellent, which I feel is a reflection of our consistent offering and our market leading client service, as well as our ability to be flexible in response to client requirements. With this context, our long-term goal is to continue providing this valuable service to our clients.
Without doubt the biggest challenge that we face is distribution and raising our profile, I have full confidence in our product offering and I know that we can add value to many broker clients. Because we operate on tight margins in order to offer our clients the most competitive service, we do not have the same marketing budget as the large market making brokers who are geared to targeting vast numbers of retail clients. As such, we have to do targeted marketing and also to let our product do the talking.
In terms of new products, I feel there is a space in the market for another middle tier Institutional FX Prime Broker (acting as a settlement intermediary between large brokers who source direct liquidity and the major LPs). This is a route that we may choose to go down because we are well positioned, given our strong bank relationships and the comparative strength of our balance sheet. This may be something we will consider over the course of 2013.